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Mark Sharp

MARKET regulators said last week they had not received any formal complaints from investors who had made mistaken investment decisions due to complicated or downright unreadable company announcements.

 The executive director of the stock exchange's listing division, Lawrence Fok Kwong-man, conceded, however, that 'during some casual conversations, people have said they have had difficulties, especially understanding complicated transactions'.

 A working group on the use of plain language in company announcements, formed in March by the Securities and Futures Commission (SFC), last week revealed a set of proposals to improve the way such information is presented to investors.

  Corporate announcements are laced with incomprehensible legal terminology, wordy sentences and hidden facts, making it difficult to understand what the company is trying to say to investors.

 The outcome of any transaction being reported may be uncertain, leaving investors muddled and unable to react correctly.

  Due to the initiative of the working party, which comprises members of the SFC, corporate financiers, lawyers and company secretaries, company announcements should no longer read like rocket science journals.

 The purpose of the project is to promote transparency and enhance Hong Kong's role as an international financial centre, the SFC's executive director of corporate finance, Laura Cha, said.

 She said the purpose of the working group was to simplify the language.

 'There is no change in the listing rule requirements,' Ms Cha said.

 Mr Fok said: 'We are not changing the listing rules . . . just kicking out the useless information.'  The guidelines drawn up by the working party resemble a course in basic English grammar.

 The main body of the proposal includes:   Introducing a summary box for the transaction, its effect, and its impact on shareholders;   arranging the information in a more meaningful order, giving investors the most important information first;   using frequent and meaningful headings to break up the text;   highlighting the warnings to investors;   spacing of paragraphs and other design features to make reading easier; and   using shorter sentences and simple English.

 Several listed companies have liaised with the working group by offering original texts of announcements, which have been reproduced alongside simplified notices.

 Compare: 'In the event that the above conditions are not fulfilled by the Vendor on or before 1 January 1997 or such later date as may be agreed by the Vendor and the Company, then the subscription agreement and the respective rights and obligations of the parties thereunder will lapse and terminate.'   With: 'If these conditions are not fulfilled by the Vendor on or before 1 January 1997, or a later date agreed between the parties, then the subscription agreement will end.'  Some notices are even more wordy and complicated.

 Compare: The Rights Issue is conditional upon: the delivery to the stock exchange and filing and registration with the Registrar of Companies in Hong Kong respectively on or prior to the date on which the prospectus to be issued in respect of the Rights Issue (the 'Prospectus') is posted (the 'Posting Date') of one copy each of the Prospectus, the provisional allotment letter and the form of application for excess Rights Shares ('Prospectus Documents') each duly certified by two Directors (or by their agents duly authorised in writing) as having been approved by resolution of the board of directors (and all other documents required to be attached thereto) and otherwise complying with the requirements of the Companies Ordinance (Cap 32 of the Laws of Hong Kong) and the Listing Rules.

  With: Conditions of the rights issue: HK Investments must deliver to the Stock Exchange and file and register with the Hong Kong Registrar of Companies all relevant documents as required by the Listing Rules and the Companies Ordinance.

  What remains to be seen is whether these recommendations will be adopted by the listed companies.

 Ms Cha said there was an incentive - those companies producing notices in simple language would get first priority when it came to processing statements. It must be easier to use plain language than legal terms, the SFC said.

 The group has listed a small number of English books which can be used as reference. 'Success lies with the market in adopting simpler, clearer language,' Ms Cha said.

 'It will be a challenge to company secretaries and merchant bankers.'  The next task for the working group will be tackling the adoption of plain language for initial public offering prospectuses.



Market gets lesson in straight talking