HONG KONG—The government said it would revise its laws to force listed companies to disclose price-sensitive information in a timely manner, closing a regulatory loophole but falling short of activists’ calls to make nondisclosure a criminal offense.
Instead, the plan relies primarily on a civil tribunal that can impose fines of as much as eight million Hong Kong dollars (US$1 million), among other sanctions. Critics say Hong Kong’s underused tribunals are slow, expensive and ineffective.
Under the plan, which the government said it modeled on British and European practices, regulators at Hong Kong’s Securities and Futures Commission would bring cases of nondisclosure before the Market Misconduct Tribunal, a civil body established in 2003.
Price-sensitive information would be defined along the same lines as “insider information,” with exceptions made, among other things, for information deemed to be a “trade secret.”
Mark Dickens, head of listing for stock-exchange operator Hong Kong Exchanges & Clearing Ltd., called the proposed change “a first step forward,” arguing it strikes a proper balance “and has the best chance of success”—a reference to the strong opposition from many of Hong Kong’s listed companies to more radical changes. He left the door open for further tightening of the law if the proposed changes failed to change market behavior.
Others were more critical. “The tycoons have gotten what they wanted,” said shareholder activist David Webb, who called the proposal a significantly diluted version of regulatory reforms that were proposed in 2003. He urged Hong Kong to learn from the Australian regime, which he said can jail company directors for nondisclosure of price-sensitive information.
A government spokeswoman didn’t comment on Australia’s system and said the U.S.’s “fair disclosure” regime, which requires disclosure to the public alongside market professionals, is “unique” and “not comparable” to Hong Kong’s situation.
While the Market Misconduct Tribunal will be capable under the proposal of imposing fines on a company and its directors and barring directors from future involvement in listed companies, SFC regulators have largely abandoned civil tribunals for insider-dealing cases. Instead, they have prosecuted insider-dealing cases in criminal court with a string of high-profile successes.
The Market Misconduct Tribunal has dealt with only a handful of cases since it was set up seven years ago and has no active cases. It also is unclear whether the proposed fines can be enforced, after a landmark 2008 case in Hong Kong’s highest court ruled that fines imposed by a civil tribunal would violate Hong Kong’s bill of rights. (The government said it considered that case before making its proposals, and said it has legal backing for the fines.)
“They may be seeking to breathe new life into the MMT, which seems to have been sidelined by the recent shift to the criminal regime,” said Jeremy Leifer, a Hong Kong-based partner with New York law firm White & Case LLP. Mr. Leifer said there is a move away from civil cases, which he said “can take years to reach a result” and are “usually enormously costly for both sides.”
Local tycoons guardedly cheered the government’s proposal. Mike Wong, chief executive of the Chamber of Hong Kong Listed Companies, a group of 220 companies that includes some of Hong Kong’s best-known businessmen, said Monday that the absence of criminal sanctions “will remove a major concern of the market.”