The importance of standards

Overseas regulators continue to impose huge settlements on bankers for misdeeds uncovered by closer scrutiny and accountability in the wake of the financial crisis. That makes an order by a local judge for payment of nearly HK$24 million compensation by a former senior investment banker sound like the remedy for a relatively minor market misdemeanour. But it is far more important than that for Hong Kong's reputation as a financial hub.

The Court of First Instance ordered convicted insider dealer Du Jun, former managing director of Morgan Stanley Asia, to compensate 300-odd investors for his HK$87 million dealing in shares of Citic Resources based on knowledge of a bond offer before it became public.

The Securities and Futures Commission began investigating Du in 2007 and, in a first, sought a court order to freeze his assets pending possible compensation for investors. The outcome this month marked two other firsts - of insider trading victims being compensated under section 213 of the Securities and Futures Ordinance; and the first time an insider dealer has been ordered to compensate victims who did not know they had been victimised. The SFC traced them through the electronic trading system which matched their sell orders with Du's buy order. They will get the price difference between when they bought the shares and when the deal became public.

The jailing of Du for seven years - later reduced to six on appeal - in the District Court in 2009 sent the clearest message that market manipulation and insider dealing are now crimes regulators will pursue seriously. Since then the SFC has had to contend with criticism for pursuing smaller, local cases of wrongdoing, and a perception that insider dealing is a victimless crime. Its persistence has helped to educate the public, with more recent high-profile cases including a court order to sport-fabric maker Hontex International to repay more than HK$1 billion to small shareholders for misleading information in its prospectus.

Enforcement against big and small wrongdoers alike is necessary to maintain a level playing field and the city's status as a financial hub. At a time when our corporate governance standards are coming under scrutiny, and debate is swirling about relaxing listing rules to suit high-profile companies, that is important. Governance standards are paramount in promoting the city as an international financial centre.