Listing committee will examine a proposal for a 5pc threshold for declarations by major shareholders Major shareholders who pledge 5 per cent or more of the shares in a listed company to secure loans will need to make public disclosure, if a proposal by the stock exchange is approved this month. A Hong Kong Exchanges and Clearing (HKEx) source told the South China Morning Post that its listing division had proposed the rules - which will compel disclosure when the shares are used as collateral for margin borrowing, bank loans or other debts - in response to the collapse of three stocks in recent months after huge blocks of shares were dumped by creditors. The HKEx listing committee - an independent panel that also includes outside finance professionals and lawyers - is expected to discuss the proposal at its quarterly policy meeting on September 20. The Securities and Futures Ordinance already requires shareholders who hold 5 per cent of a listed company to disclose any shareholding change. 'Five per cent would be the most ideal disclosure threshold,' the source said. The share price collapses in the three companies left minority shareholders - who were unaware that a large portion of company shares had been pledged as collateral - with no time to sell. South Sea Petroleum Holdings' share price plunged 95 per cent in 20 minutes two weeks ago. Shares of filmmaker B&S Entertainment Holdings and Far East Pharmaceutical Technology had earlier suffered a similar fate. The exchange source said they would like to see a shorter disclosure time-frame than the three days specified in the Securities and Futures Ordinance for major shareholding changes. 'In case of the share pledges, a three-day reporting period may be too long,' the source said. 'Banks or brokers may well sell the shares the day after the pledges are made.' The exchange is unlikely to require creditors to make a disclosure when they receive shares as collateral, as some commentators have suggested. The banks and brokers are bound by the privacy law and they are not able to disclose client information. 'Disclosure should be the responsibility of the shareholders,' the exchange source said. The HKEx could add the proposed disclosure requirement to the listing rules, but it has limited enforcement powers. For the change to be effective, it would need to be introduced as an amendment to the Securities and Futures Ordinance, with enforcement by the Securities and Futures Commission. 'The exchange can only reprimand those who have breached the listing rules, but the SFC can prosecute those breaching the securities law and send them to jail,' the source said. An SFC source said the commission would consult the market at the end of this month on matters relating to shareholder disclosure, and would welcome a submission from the exchange. The commission in 1999 ended a similar proposal due to privacy concerns, but public opinion has changed. 'The major shareholders of listed companies should give up some privacy in the interests of the public,' said Choi Chen Po-sum, a vice-chairman of Hong Kong Institute of Securities Dealers.