Sniffing scent on New World trail

We are beginning to get some replies at last to that question of who should be the detective in charge of sniffing up the trail of the mysterious masked messenger who gave selected analysts an early alert last week to poor results from New World Development.

Securities and Futures Commission (SFC) boss Andrew Sheng has written to me directly (thank you, Sir) to point to the stock exchange. There has been no word yet from the exchange but this is excusable if Mr Sheng is right. Those exchange sleuths must be too busy sleuthing right now to have time for a reply.

Here is Mr Sheng's view of it: 'Regulation of this area is clearly with the Stock Exchange. Paragraph 2 of the General Undertaking entered into by every listed company with the Stock Exchange, pursuant to the Listing Rules, clearly covers this and requires that listed issuers do not indulge in selective disclosure to the market . . .

'This is in line with the general position that the Stock Exchange is the front-line regulator of listed companies, save in respect of takeovers and mergers.'

All the more interesting therefore that, a little earlier, I received the following enlightenment in an e-mail from a lawyer who wishes to remain anonymous: 'Maybe I can assist a little although I expect you already know what the story is. The body who should be investigating the New World matter is the SFC. The suspicion (and it can only be a suspicion at this time) is that insider dealing has occurred in breach of the Securities (Insider Dealing) Ordinance.'

Back to said lawyer therefore with one of those are-you-sure queries and the upshot was one of those it-all-depends answers.

This is how it breaks down. If the New World affair involves any suspicion of insider dealing by directors, analysts or clients of analysts then it is an SFC matter. The law says it is the SFC's job to investigate insider dealing. The SFC does not prosecute such cases. That goes to an insider dealing tribunal. But if the SFC says it should go to a tribunal it probably will.

On the other hand if the affair is simply treated as the failure of a listed company to disclose price-sensitive information through proper channels then it is probably the exchange's job to rap the company on the knuckles

So what do you think? Was that selective earnings alert only a technical breach of the rules, something akin to remarking what a nice day it was but in the wrong way? Did those analysts and the clients of their firms treat it only as they would a football score and then ignore it to get back to business?

In other words, did I stand on my head for my entire 18 years as an investment analyst, wrong all that time in thinking that a share price that suddenly plummets days ahead of a results announcement meant something? Did I never feel that my job would be on the line if a 'good one' were not passed to the dealing desk faster than greased lightning?

But the return query to Mr Sheng was something else: 'Why is a stock exchange that has become a profit-making organisation and is now answerable first to its shareholders still left with primary responsibility for regulating itself?'

The response from Mr Sheng: 'The frank answer is that the merger exercise was so big that Stage One, moving intermediaries supervision to the SFC, which was the right thing to do, was already quite a large chunk to digest. I prefer to do a job well rather than bite more than I can chew.

'Stage Two, whether listing issues come to the Commission, is a major policy issue that would require wide public consultation. This is something I would prefer not to comment on at the moment.'

Fair enough, but do hurry it up, Sir.