JAKE'S VIEW
Jake's View
by

Charles Li now effectively has the go ahead for his big new idea. He calls it the ‘New Board Pro’. I call it the trash board

All listing new restraints removed; no track record required; no minimum capitalisation; no director dealing restriction; and any company listed can be controlled absolutely by people who hold none of the shares

PUBLISHED : Monday, 18 September, 2017, 4:14pm
UPDATED : Monday, 18 September, 2017, 11:00pm

CLSA’s global equity strategist Christopher Wood said rejecting dual-class share listings in Hong Kong would be “stupid” and lead to lost future listing opportunities.

He said the key in future would be disclosure, and that as long as companies having dual-class shares were open about their shareholder structure, it would be up to investors to decide if they wanted to walk away from an investment in stocks.

– Securities watchdog’s retreat on new share listings paves way for dual-class shares, SCMP Business, Sept 14

I’m afraid you will have to include me in your list of stupid people, Chris. I cannot see much benefit for ordinary investors like me in dual share listings, but I can see a great deal of danger.

It is all very well to say no one forces investors to invest, and it should thus be up to investors alone to decide what they want to do rather than the business of any supervisory agency.

But push that argument to its logical conclusion and there is no reason to have any safeguards at all.

Why have a listings committee at the stock exchange if the choice of available stocks should be up to the investors? Why demand a prospectus for a new listing? Why ask for a track record? Why have regulators?

In every case you can make the argument that investment is entirely a matter of free choice by a responsible individual and it is enough to tell the buyer to beware.

Why have a listings committee at the stock exchange if the choice of available stocks should be up to the investors? Why demand a prospectus for a new listing? Why ask for a track record? Why have regulators?

But this has never been the way we do things. Call to mind the Lehman minibond scandal when a bunch of Wall Street sharks deliberately misnamed a risky derivative instrument based on the good credit of the New York financiers, Lehman Brothers, and sold it in large quantities to Hong Kong retail investors.

Lehman Brothers’ credit was not good and the Hong Kong holders of these derivatives would have lost all, except, that there was an enormous outcry and the sellers were forced to make restitution.

Our system assumes you cannot expect investors to be conversant with all the financial details of the investments on offer here, and therefore these investments must pass through a range of filters to keep out at least the worst of the thieves.

It won’t do to say that full disclosure is sufficient. A full 24-hour day’s reading of corporate disclosure is posted on our stock exchange website every day. Find me any individual who has ever read a full day’s worth. The value of disclosure has been made moot by its sheer volume.

Now put this in the context of the regulatory defeat that the Securities and Futures Commission suffered last week at the hands of stock exchange boss, Charles Li Xiaojia, and the new financial services secretary, James Lau, a career bureaucrat with no investment experience.

Li now effectively has the go ahead for his big new idea. He calls it the “New Board Pro”. I call it the trash board.

It will leave ordinary investors in Hong Kong open to the slavering attentions of any number of mainland sharks who feel not the slightest obligation to their shareholders

It would remove all listing restraints and I mean all. No track record will be required, no minimum capitalisation, no director dealing restrictions and the principle of one share, one vote will be sacrificed. Any company listed on the trash board can be controlled absolutely by people who hold none of the shares.

It is the best way to compete against New York and attract more listings to Hong Kong, says Mr Li.

I say it is only the best way to cash him out of his share options at a top price when he goes looking for his next job.

It will leave ordinary investors in Hong Kong open to the slavering attentions of any number of mainland sharks who feel not the slightest obligation to their shareholders.

New York at least offers class action lawsuits and contingency fee arrangements to robbed investors.

Our most militant trade union, the Hong Kong legal community, has seen to it, however, that investors here will never get even these protections.

We had a chance to show up the casino that lax monetary policies have made of the US stock market. The dual-share prices of the likes of Facebook, Amazon, Netflix and Google will crumble and blow away like dust in the wind with the next US financial crisis, just like their counterparts did in 2000 and 2008.

And our reputation for doing things the right way could have shone for a century to come. But now it won’t.

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