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Jake's View
PUBLISHED : Sunday, 11 May, 2014, 3:34am
UPDATED : Sunday, 11 May, 2014, 3:34am

MTR's silence on delays offers test of how well the SFC protects investors


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

SFC seeks 5-year ban in Tiger Asia case

South China Morning Post headline, May 8

The story is simple. An investment banker called up Tiger Asia, a New York-based investment fund, to sound out interest in a placement of China Construction Bank shares.

He informed Tiger Asia of the size and price of the placement and the Tiger Asia man demurred taking an immediate decision, possibly because the circumstances of the offer suggested that CCB was not all that confident in its own immediate future.

Whatever the reason, he called a different broker and placed a sell order.

This was dealing on inside information, says Hong Kong's Securities and Futures Commission.

How so?

If it was indeed inside information, then any dealing on the basis of it would be illegal. But none of the investors who bought the stock on the basis of what they were told by the investment bank have been done for insider dealing.

This is a straightforward case of black or white, yes or no. If it is inside information, then no one may buy or sell on the basis of it. If it is not inside information, then anyone may do so.

But, protests the SFC, Tiger Asia undertook with the investment bank only to buy the stock if it was told of the placement details.

Perhaps, but leaving aside that this would then be a matter of private dispute between Tiger Asia and the investment bank, what business does any broker have telling a client that if he listens to that broker's story he may not sell the stock?

I remember trying something of the sort once as a junior in my first stockbroking job and being rightly and soundly told off by the client.

It's just not on. You don't tie the market's hands that way.

In any case, the SFC took Tiger Asia to one of its kangaroo courts, a Market Misconduct Tribunal, and predictably convicted it there. In a court of law the SFC would have had to prove its case beyond a reasonable doubt but in its kangaroo courts only balance-of-probability standards apply.

And here is the real twist of irony. Once done in an SFC kangaroo court, you can no longer appeal the decision in a court of law, except perhaps in very exceptional circumstances. The two are meant to be mutually exclusive.

But the SFC itself can still go to a court of law and, under what it calls a Section 213, have a wide range of additional penalties imposed on you over and above the penalties that the kangaroo court can impose. The SFC is now doing this to Tiger Asia.

An appeal court judge has said it may do so on the grounds that this Section 213 "provides much-needed ammunition to the commission to protect investors".

It must remain a mystery how a judge with no professional knowledge of the investment business can know what is "much needed" in investment, but the real shame here is that the Court of Final Appeal sided with him.

Both courts shunned any consideration of the SFC's daft, one-sided definition of insider dealing in this case. Judges have a way of deferring to the SFC in matters in which they say the SFC has expertise.

I can understand this, but the SFC's expertise is also law, not financial markets. These regulators are lawyers by profession, not brokers and fund managers. It's a bit like saying that judges should not rule on the merits of charges brought by the police on the grounds that judges are not policemen.

At last, however, we have the test of how valiant a defender of the investing public we have in the SFC.

The secretary for transport, Professor Anthony Cheung Bing-leung, and several other MTR Corp directors have now admitted not telling lawmakers in November that they would miss the completion deadline for the high-speed cross-border railway.

The MTR Corp is a listed company, and listed companies are required by law to disclose in a timely fashion all price-sensitive information, which this delay manifestly is. Will the SFC now drag Cheung into one of its kangaroo courts for breaching the law?

Could happen, you know. Stop laughing.


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John Adams
We very sadly lost Tom Holland
Heaven help us if we ever lose Jake
the real question is "what can we do about it now?" NOTHING. the rich protect their own.
The PSI legislation requires disclosure of relevant information. Section 245(2) of the SFO stipulates that “relevant information” means any specific information about the corporation, the listed securities of the corporation …, which is not generally known to the investing public, and, if such information is known to them, it would be likely to materially affect the price of the listed securities.
In my opinion, it was likely that this information would affect the share price materially. Given how many people apparently knew and for how long it would appear that the massive underperformance by the MTR shares from November relative to the HSI confirms that it was "relevant"
Mr van der Kamp needs to brush up his knowledge of the securities industry, because he is off by a mile here. It is a good thing he is no longer active in that industry, because he'd risk jail time if this is indicative of his level of knowledge of securities regulation.

The placement of the shares in CCB was a private placement, not a public one. Information received as part of a private placement may not be used for any other purpose than to participate in that offering. And yes, that prohibition includes buying the shares outside of the offering as well. (a completely irrational thing to do, since the offering is made at a discount, so you'd be crazy to then go out and buy the shares at full price).

It is very simple: the information about the private placement is non-public and it is made explicitly clear to anybody who receives it that they may not deal on it. You may not deal on non-public information ever. Period. And if you do, that counts as insider trading. Share prices of companies nearly always go down after a private placement (dilutive effect etc) , which is the very reason why the new shares are offered at a discount to market to the select investors invited to participate.

Shorting shares in which you know there is a private placement happening overnight is therefore a no-brainer, insider trading and is outright illegal, and deserves regulatory prosecution. And is not just the HK SFC being pedantic, it would be the same in other jurisdictions.
The real question is, why is a private placement not considered insider trading? It is, after all, dealing on non-public knowledge - that a company is selling shares at a discount.
The stuff about the MTR is even worse bee-es.

First of all, from a share price perspective, the announcement of the high speed railway delay of is not material. And for that you don't have to do the legwork on how much NAV any costs the MTR would have to pay for the delay might be in the share price and so on. You just have to look at what happened to the share price when the news did come out: nothing. Nothing out of line with what the market did that day at least.

Secondly, if it were material, then timely manner does not mean: rush to the press conference room as soon as you hear about it. The question would be whether a prudent accountant (and auditor) would deem that a material allowance (ie, a line of potential liability on the balance sheet) should be made. If that would be the case, and in this case, it could take weeks if not months of deliberations to establish this, AND it would be material, then the company would have the duty to inform shareholders in a timely manner. And this timely manner would in all likelihood still be: at the next periodical investor meeting.

The issue with the MTR is whether they lied to government officers, and/or if those officers in turn lied to LegCo, but this is not a question for the SFC to address. Mr van der Kamp appears to be increasingly living in a fantasy world where he sees wrongdoings by the SFC left and right.
Broker is broker. it has to take risk for underwriting
And i dont see the small investors would have suffered less if Tiger Asia accepted the deal.


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