Hanergy case a test for Hong Kong and Chinese regulators
The investigation into the unusual share trading of Hanergy Thin Film Power will be a test of cross-border regulation as much of the trading came from mainland investors, who are out of the SFC’s reach.
The company suspended trading of its shares from May 20 after its share price plunged 47 per cent in just 70 minutes of trading, diving to HK$3.91 from the previous day’s close of HK$7.37.
The shares experienced big swings before the suspension and had risen 664 per cent in the 12 months before the sell-off. In a rare move, the Securities and Futures Commission went public last week with an announcement that it was investigating share trading in Hanergy, just hours after Hanergy chairman Li Hejun, speaking to mainland media, denied any such probe was under way.
It is good to learn the SFC is doing its job but we do not how far it can go as much of the trading came from north of the border.
According to stock exchange data, Hanergy was the stock most traded by mainlanders via the Shanghai-Hong Kong Stock Connect scheme in February and March.
In March, mainlanders traded a total of HK$4.96 billion in Hanergy shares via the scheme’s southbound route.
Hanergy’s turnover under the cross-border trading scheme was five times that of second-placed China Railway Construction Corporation, which only saw turnover of HK$947 million during the month.
In February, Hanergy also ranked top of the cross-border scheme, with turnover of HK$775.29 million.
Even before its suspension in May, it still ranked highly on many days. On May 20, even though it only traded for 70 minutes, it was still the fourth-most-traded stock by mainlanders under the stock connect scheme, with HK$112.94 million of buy orders and HK$46.74 of million sell orders, for a total turnover of HK$159.68 million.
The SFC, as a Hong Kong regulator, cannot venture north to investigate and has to rely on the China Securities Regulatory Commission (CSRC) to conduct such investigations for it.
The SFC and the CSRC have signed a memorandum of understanding on cross-border regulation and Hanergy will be a test case.
Many will be watching whether the two regulators can protect investors by cracking down on market manipulation or insider dealing under the cross-border scheme and get compensation for investors as a result.
Hanergy may well be the first such case but it is unlikely to be the last one, with the cross-border scheme having become more active since April.
At such a critical moment, it is sad to learn that the SFC is losing Mark Steward, its executive director for enforcement. The SFC announced on Friday that Steward will leave in September to take up a similar position with Britain’s Financial Conduct Authority.
As it tackles cross-border trading irregularities, the SFC needs to find a replacement soon.