Hong Kong regulator SFC orders loss-making medical firm to suspend trading
New Ray Medicine suspension the latest enforcement action to maintain market integrity after poor quality of some listings attracts short sellers
The Securities and Futures Commission has ordered the Hong Kong stock exchange to suspend loss-making pharmaceutical firm New Ray Medicine International Holding from trading in the latest regulatory action by the securities watchdog to maintain “market integrity”.
The SFC exercised its power under Rule 8(1) of the Securities and Futures (Stock Market Listing) Rules to direct the stock exchange of Hong Kong to suspend all trading of New Ray Medicine effective Friday morning, according to the company’s announcement filed with the stock exchange.
The SFC did not comment on its regulatory action on Friday.
Under the securities law, the commission directed the exchange to suspend all dealings in the company’s securities to protect investors and market integrity.
The SFC seldom issued such orders previously, but starting this year it has exercised these powers a number of times as part of a vow to step up enforcement against “scam shares” and other malpractices.
New Ray Medicine, a Zhejiang-based pharmaceutical company co-founded by 38-year old chairman Zhou Ling in 2001, listed on the city’s Growth Enterprise Market in 2013 and transferred to the main board in 2015.
The company issued a statement on Friday night, explaining that the SFC’s action was because the regulator had considered that several announcements made by the company in 2015 and 2016 “may have contained materially false, incomplete or misleading information”. The announcements involved the company’s acquisitions of a 50 per cent interest in Saike International Medical Group and a 15 per cent interest in Eternal Charm International.
The company said the SFC had informed them that the share suspension was to maintain a fair market and protect the interests of the investing public. It is seeking legal advice on how to address the SFC’s concerns.
New Ray Medicine reported that its net loss for the first half of this year widened to HK$52.43 million (US$6.72 million) from HK$420,000 a year earlier. The company’s share price last traded at 42.5 HK cents.
The SFC last month backed down on a listing reform plan that would have seen it take on a front-line role in approving new listings, leaving that responsibility to the stock exchange. Before that, the commission used other methods to improve market quality. Over the past few months it has stepped up front end regulation with more stringent enforcement to disqualify poor quality new listings or companies with alleged malpractices.
In June, the SFC ordered Lerado Financial Group Company to suspend trading after the regulator accused the company of giving misleading information in an announcement in 2015, Lerado said in a stock exchange filing.
In February, it suspended trading of newly listed Growth Enterprise Market stock GME Group Holdings just a few hours after its listing, after the shares soared more than 542 per cent on their debut. The SFC later ordered some brokers to freeze certain accounts of investors, alleging there was manipulation behind the trading.
SFC chairman Carlson Tong Ka-shing earlier told the South China Morning Post that the commission is keen on removing so-called con shares which are penny stocks that go through repeated splits to raise more funds from investors, even though the company does not have any profitable business.
The poor quality of some new listing has seen the Hong Kong market become a target of short sellers.