Why should Hong Kong suffer regulatory overkill just because of rampant corporate and investment banking abuses unfolding in the United States?
That is a question some asked last week when the Securities and Futures Commission (SFC) said it wanted to follow the winds of change in the US by introducing tougher guidelines on the conduct of financial analysts.
Yet it is clearly an issue Hong Kong needs to examine as well. As shown by a recent case.
On May 23, DBS Vickers Securities issued a report on Star Cruises which recommended a 'strong buy'. Since then the share has dropped - to yesterday's HK$3.30 close from about $4.
Of course, no one is surprised when the predictions of analysts do not match the actual movement of stocks. What is intriguing is that one week later, on May 30, DBS Vickers said it would be the co-manager, as well as a lead placing agent and a book-runner, for the cruise operator's HK$624 million placement.
There is no reason to believe there was not the proper segregation - the so-called Chinese wall - between the group's analysts and corporate finance operations. In fact, such a segregation may be the reason why the research report did not mention anything about the possibility of such a fund-raising, although about that time some other firms, such as Kim Eng Securities, had put a 'sell' recommendation on the stock and warned of an expected US$100 million cash call.
