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  • Oct 24, 2014
  • Updated: 6:30pm
Jake's View
PUBLISHED : Sunday, 22 June, 2014, 3:15am
UPDATED : Sunday, 22 June, 2014, 5:24pm

Council proposals won't do much for investor protection

Hong Kong's Financial Services Development Council proposed yesterday the creation of several new listing boards, including one specialising in companies with unique shareholding structures...

South China Morning Post, June 19

Struggle your way through the consulta-babble in which this report is written and you find that these new boards would be just another way of allowing in companies like Alibaba whose directors want a listing but don't want to put their own skin in the game.

We have already said no to this idea, and said it resoundingly. If you want to dive for the bottom, go to Singapore. They don't have much in the way of scruples down there. We do. We may not practise one person, one vote in politics but we stick to one share, one vote in the market.

And yet here, trying it on again, we have this odd financial advisory council that the chief executive, an estate agent by trade, appointed on his own mandate without much reference to the financial world, and which has since done little but put out a stream of self-serving position papers.

Hey, fellas, listen up. We said no. Do you live on another planet or something?

Yes, it is true that London and New York allow some big swingers in technology to have absolute control over companies in which they hold only a small fraction of the share capital.

It doesn't say much for the standards of those two cities either but at least they offer investor protections that we do not have. In New York, for instance, cheated shareholders can sue via class action paid for in contingency fees.

These are union-busting advances which our own Amalgamated Brotherhood of Law and Allied Workers staunchly resist as a potential threat to fee income. Hong Kong lawyers are determined not to emerge from the 17th century.

We must therefore rely more heavily on the Small Fry Commission (SFC), otherwise referred to as the Securities and Futures Commission but chiefly characterised by its love of fishing for small fry stockbrokers and blaming others when things go wrong for small fry investors.

When these regulators were challenged recently to discipline the MTR Corporation for not reporting price-sensitive information to the stock exchange, as required by a law they loudly cheered, all was silence. Strange, that.

Let's also remember that the SFC's writ does not extend over the border although most of our market's capitalisation now consists of mainland stocks.

In short, investors here have very little protection anyway from the sharks of the market. Are we then to turn them into pure shark bait by removing the one protection they have that sharks who take big bites of them must also bite themselves?

This latest advisory council study features a few other howlers. In the executive summary it states: "... we encourage the market regulators to be proactive and flexible in their administrative practices, so that the market will see ... improvements in key aspects that do not require consultation or law or rule making processes, or where such processes may be expedited."

Pardon the confused phrasing. It's not mine. But what the authors of this report could have discovered by talking to the stock exchange is that any rule change it makes requires a consultation. There can be no expediting.

They didn't talk to the stock exchange. They haven't talked to anyone much. Their wisdom is sufficient to itself, you see.

And then we have them calling for scripless trading. Lovely idea. It will bring the Hong Kong market into the modern world.

One problem, however. The stock exchange has already been trying it for years and the local Hong Kong investor refuses. He wants the feel of that share certificate inside his mattress. He doesn't trust a stranger's promise delivered over a digital communications node.

Talk to a few of them, fellas, and you would know.

This council should have followed the advice I offered when it was formed - swan around the world, eat fancy, live high, fly first class and then return and recommend the reforms already in process; mission accomplished.

But, aw shucks, they wouldn't listen to me.


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This article is now closed to comments

Jake may not be right on Singapore but he has made a lot of valid points here. Dual class share structure is viable in the US because its market have the legal and institutional mechanisms to compensate for the possible risks posed by such a corporate structure. But here in HK, these mechanisms do not exist. The HK govt conducted a consultation in 2012 to consider implementing class action. But it concluded that it is not the suitable time to do so.
You have a point about his points, kongshan. But shouldn't "investors" and "speculators" be given the option to decide whether they want to put their money in a company that has a dual share structure or not, as long as the legal and institutional mechanisms are made clear, warts and all? Insist on one share one vote like Jake, then don't buy. What's so difficult? Surely a veteran financial journalist like Jake must know that the market comprises investors with different risk profiles? Or am I sensing that Jake wants to be a nanny to all, including muddle-headed punters who treat the share board like a craps table? Gee, did Jake learn from the Lion City how to be a nanny? My way or the highway? Isn't capitalism about the "freedom" to choose? If the mechanisms are inadequate, then deal with that. You don't progress by talking round and round a challenge
I fully agree with you. Personally I think people should have the right to choose so long as they are informed of all the possible risks and understand what they are bargaining for. My point is that before we make these regulatory reforms, we need to ensure that mechanisms exist to compensate for some of the shortcomings of dual class share structure.
On the positive side, he is spot on about the FSDC. It is a self-serving group of industry-insiders, all with vested interests attached, who have been appointed by the relevant ExCo members (Jean Tsang, KC Chan and the Chief Nitwit himself) without a shred of transparency, and who have now taken up a key role in the making of industry-friendly public-parasiting policy.

In short: business as usual for the Hong Kong government.
Mr van der Kamp remains stubbornly wrong on the issue of the MTR disclosure.

Companies are required to disclose material information to stockholders in a timely manner. Yet, firstly, the MTR stock price has not seen any related dent ever since the news (about the delays in various construction projects) did come out. Apart from the more complex calculations of revenue lost and/or balance sheet effects you could do which would show you how minor the financial impact is, this absence of share price movement alone tells you that these delays are NOT material. Pull up a blind (no dates) chart of the past 6 months' MTR share price and tell me if you can point at the day this news broke. You can't.

Secondly, when a multi-year construction project gets delayed by a couple of months, informing investors at the next quarterly update would be considered timely enough, especially since the effect of the delays won't hit the corporation's bottom line for many years (if they ever do).

While the MTR's handing of these delays was maladroit and does not give much confidence in its management, it is definitely not anywhere near the kind of material breach of security regulations that would warrant SFC prosecution. Mr van der Kamp is fighting windmills there.
Whoa! Jake van der Kamp is beginning to sound like the pope! Singapore does not have scruples. We do! Ever so resoundingly! So much so that Hong Kong is deemed the crony capitalist and money laundering hub of the world! Come off your high horse Jake.Time to return to where you belong, at the bottom, along with your ****. Ever contemplated why some folks refuse to listen to you Jake? Ever wondered why there is a LACK of trust amongst local investors for scripless trading? I guess not. Jake is too blinkered to think out of the box, since HE who created the "imaginary" world must know everything. Everything
Gee, what did Jake do for you mate? **** you? Does he need you to defend him? Why don't you ask him whether someone from Singapore had slept with his wife because quite obviously he has a huge axe to grind with the Lion City and he does so at every opportunity like a big idiotic BOY that churns churns idle and childish gossip of oneupmanship. With folks like him, am I supposed to believe HK is serious about honest journalism with "scruples" and the "free media". Hey, as long as he wants to play the game, I shall have fun as well. Singaporeans have little or no scruples so he says. So why not? We are all adults aren't we? The pen is mightier than the sword. But hey we are open to using the sword as well. As for him sleeping with my missus. Oh dearie XYZ, I really wish he would stand a chance with his beard and stench. We are really open minded folks - no scruples and no morals may I add, but sad to say, the caveman is not her type by any stretch of the imagination


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