HKEx unveils new guidelines for companies facing allegations of fraud or other misconduct

Hong Kong-listed companies which are alleged to have fraud or false accounting problems will need to issue clarification announcements or their shares must be suspended from trading, according to a guidance letter issued by the stock exchange on Friday.

David Graham, HKEx’s chief regulatory officer and head of listing said the guidance letter sets out the exchange’s revised approach in instances when listed companies are subject to allegations of fraud, material accounting or corporate governance irregularities.

In some cases, allegations have been levelled at companies by short sellers or other research firms, often with the effect of triggering a price slide in the shares of the company under fire.

The Hong Kong stock exchange previously did not have a formal policy on how companies should handle the situation, particularly with reference to whether or not they should request a trading suspension.

The exchange now requires listed companies to issue a clarification announcement to address such allegations.

Companies which are unable to issue a clarification announcement will need to apply for a trading suspension to help prevent disorderly markets.

“Our revised approach is closer to the regulatory approaches of other markets and has the effect of keeping any necessary trading halt to the minimum consistent with our general approach to trading halts,” Graham said.