PERL: Strickland's Submission
28 March 2004
Mr John Strickland, a director who is standing for election at this week's AGM of Hong Kong Exchanges and Clearing Ltd (HKEx, 0388) AGM this week (see voting recommendations) made a personal submission to the Government on Proposals to Enhance the Regulation of Listing. We have obtained a copy and are publishing it in the interests of transparency. Click here to read his submission in its entirety.
Mr Strickland's call for statutory backing of the listing rules went substantially beyond what HKEx had suggested. HKEx had proposed statutory rules only for "certain core disclosure obligations" on financial reporting, significant corporate transactions, price-sensitive information and connected transactions, but Mr Strickland wrote:
"Statutory backing should be extended to rules relating to... corporate governance, restrictions on purchases and subscription...etc"
He also said:
"other conduct rules such as directors' dealings in securities and other directors' duties should be statutorily backed, so that proper investigations can be made and violations can be appropriately punished"
Moving on to the list of proposed sanctions, Mr Strickland proposed:
"the list should include the requirement for minority shareholders to be "made whole" by the parties that benefited from the abuse".
This raises an interesting point which we should have made in our own submission. We note that the Market Misconduct Tribunal (MMT) can only order that the profit made from, or loss avoided by, misconduct be paid to the Government, not to minority shareholders. Ironically then, the Government actually has a financial interest in greater market misconduct, the prosecution of which could boost government revenues. While we don't believe that is their intent, it is wrong in principle, and it is clear where the victims lie - the minority shareholders should receive the compensation, not the Government. At present, the investors have to take the findings of the MMT and bring their own legal action, which in the absence of a class-action system, is prohibitively expensive.
In relation to the Listing Committee's composition, Mr Strickland wrote:
"A majority of members of the Listing Committee should be personal (as opposed to institutional) investors. These are the parties who suffer when there are violations of the Listing Rules. The present members are largely market intermediaries and listed company representatives having different agendas and motivations from investors."
Tearing down the Chinese wall between the Board and the Listing Division on listing policy, Mr Strickland wrote:
"It is proper (given past history) that the Board of HKEx does not intervene in individual cases in connection with the Listing Rules. The HKEx Board should however be responsible (with the SFC) for changes to the Listing Rules, for policies in connection with the regulatory function and for ensuring that the Listing Division is appropriately staffed and managed. Any other arrangements will inevitably be contrived and impossible to defend so long as the Listing Division is part of or a subsidiary of HKEx."
The current arrangement is not what Mr Strickland proposes, and we agree that it is contrived and impossible to defend. The Board of HKEx has no involvement in Listing Matters, apart from the CEO who sits on the Listing Committee. All the full-time staff of the Listing Division theoretically report to the Listing Committee, but that committee has no say over budget and staffing matters, which are an internal management affair.
Mr Strickland also writes:
"The Listing Committee today is far too involved in individual cases of IPOs and application of the Listing Rules. The workload is impossibly large for unpaid practitioners with other jobs. As a consequence it is near impossible for them to give proper attention to matters brought before them. The proper use of the Listing Committee is a) to advise the Board of HKEx on policies, practices and procedures in connection with regulation of listed companies and b) to hear appeals from decisions made by the Listing Division. The Listing Division should deal with individual cases, overseen by the SFC and the Board of HKEx.
© Webb-site.com, 2004
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