At first glance, last Thursday's decision by the stock exchange listing committee to water down its proposed ban on directors' share dealings ahead of their companies' results announcements looks like a shameful betrayal of ordinary investors' interests.
Instead of confirming an outright prohibition on dealings by directors in the interval between the end of a company's financial period and the release of its results, the listing committee merely lengthened the existing one-month ban.
To ordinary investors the climbdown looked like a shameful retreat in the face of pressure from Hong Kong's powerful business elite. Instead of standing up for minority shareholders, the regulators cravenly backed down, effectively giving a green light to the city's tycoons to trade on inside information ahead of their own companies' earnings announcements.
Yet while the decision is certainly a disgrace, the implications may not be as bad as they seem at first. Although the committee's members failed in their duty to protect minority shareholders, they did give ordinary investors the tools they need to punish backsliders for themselves. If the frontline regulators won't discipline the market, investors will just have to take matters into their own hands.
Rather than prohibiting all trading by directors between the end of a company's financial year (or half) and the announcement of its final (or interim) earnings, Thursday's decision imposed a blackout period that bans dealing in the two months before final results are declared, and for one month before the interim results.
As the rules stand, a listed company has up to four months from the end of its financial year to announce its final earnings, and three months from the end of the half to come out with its interim profit figures. As a result, Thursday's ruling still leaves plenty of time for directors to make illicit adjustments to their holdings in response to advance inside information about company earnings.