Mr Webb had quizzed the government on its holding in MTR Corp and whether it felt bound by the SFO and its disclosure provisions, e-mailing Secretary for Financial Services and the Treasury Frederick Ma Si-hang last week.

On Friday, Martin Glass, a deputy secretary at the bureau wrote back. The entity set up to manage the government's equity portfolio, Exchange Fund Investment Ltd (EFIL), 'has obtained the approval of the financial secretary and HKMA to disclose on a voluntary basis any of its shareholdings which exceed the threshold stipulated in the SFO', he replied.

This also applies to Financial Secretary Inc (FSI), which owns 76.14 per cent of the MTR. EFIL manages the equities remaining from its 1998 intervention in the stock market.

Mr Webb said the exemption flew in the face of the SFO. 'All investors should be treated equally. If they are in the market, they should be treated the same.'

His greatest concern was the potential for rigged votes in relation to the MTR and KCR Corp merger. 'The government could push it through by voting undisclosed shareholdings,' he said.

Mr Webb accused the government of abusing the Interpretation and General Clauses Ordinance, which says no law shall be binding on the state unless expressly provided.

The government said: 'The conclusion that the SFO does not bind the government is consistent with the principles of common law, which is that an act of parliament is presumed not to bind the Crown in the absence of express provision or necessary implications.'

It reiterated that EFIL, FSI and the HKMA would disclose, on a voluntary basis, any of the Exchange Fund's shareholdings which exceeded the 5 per cent threshold.

The issue was one of hot debate after the government's 1998 market intervention. David Stannard, a managing partner at Norton Rose, in October that year made a submission to the Legislative Council on behalf of the Law Society.