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SCMP Reporter

THERE are fears about possible malpractices resulting from public firms concentrating too much on foreign exchange dealings.

  Some public companies are said to be so deeply entrenched in such dealings that their core businesses have been neglected.

  To uncover such abuses, the Hong Kong stock exchange has begun the close monitoring of such activities.

  There have been claims that more than 90 per cent of foreign exchange dealings by firms is speculative in nature.

  Sources in the banking industry say malpractices in foreign currency trading is rife among Hong Kong public companies.

  Among the abuses cited by bankers is the situation where forex losses are booked to the company, whereas any profits are pocketed by company officials.

  Sources suggest other possible ''tricks'' include a company asking its forex broker to give it a receipt showing loss in forex trading, without any real transaction taking place. The money claimed is then shared by the broker and the company official involved.

  Despite the exchange's concern, it admits that it is difficult to determine if there is malpractice resulting from forex trading.

  Herbert Hui Ho-ming, head of the exchange's listing division, says it is difficult to set out criteria to limit forex trading among listed companies since it is a legitimate commercial practice.

  If companies put their money into foreign currency deposits, it is difficult to classify the action as trading, he says.

  The only time the exchange can take action is when a company's forex trading results in abuses, Mr Hui says. But this depends on circumstances.

  Mr Hui says past cases of malpractices in forex trading indicate they have been associated with newly listed companies.

  Since these companies should have been concentrating on their core business and not be involved in too much forex trading, it showed up clearly that they were not concentrating on their normal activity.

  But many companies do take part in currency trading, related to their businesses.

  For example, in companies needing foreign currencies to source raw materials, losses or profits derived from foreign currency dealing would be expected.

  But some sources suggest that those involved in illegal activities include firms booking losses by individuals into the company accounts, while profits are pocketed.

  Unlike securities trading, there is no governing body to monitor the foreign exchange market. There is also no centralised exchange, like the stock exchange, which has direct supervision on the forex market.

  Sources say that unlike the stock market, there is no trading record, which can be used to prove illegal activities in the forex market. In the stock exchange, every transaction is recorded.

  ''More than 90 per cent of forex trading in the market is speculation, not for commercial purpose,'' a source claimed.

      Sources also say it is possible for listed companies to use the same ''tricks'' on the gold market.

  Companies involved in gold or jewellery making will have no problems explaining losses derived from gold trading.



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