Controversial new stock-exchange rules will prevent listed company directors from trading their firms' shares for half the year and will hurt the Hong Kong market's international competitiveness, influential market participants warn.
"Hong Kong will lose its appeal as a destination for companies to go public," Lo Ka-shui, a former chairman of the stock exchange's GEM Listing Committee and chairman of local property developer Great Eagle Holdings (0041), told The Standard yesterday.
Starting on January 1, the current one-month "blackout" period that prevents listed company directors from trading in the company's shares just before a results announcement will be extended.
The rule will be changed to bar company directors from such share trading between the time the financial period ends and when the results are publicly announced - a gap that is often two or three months, meaning directors cannot trade shares for a total of six to seven months when both the interim and final results are considered.
"That would affect the competitiveness of Hong Kong as an international financial center," Lo warned.
The rule change has already been approved by the board of the stock exchange and the Securities and Futures Commission, following a market consultation.
"The current one-month `blackout' period may fail to ensure that insiders do not abuse the market while in possession of unpublished price-sensitive information," the stock exchange said in a November report following a market consultation on the rule change.
The exchange said the proposal to extend the "blackout" period had attracted "considerable debate" but added it had already considered most of the arguments "at length" before it drafted the new rule proposals. "No new significant points were added to the debate as a result of the consultation exercise," the exchange said in the report. Mike Wong, chief executive of The Chamber of Hong Kong Listed Companies, said an extension of the "blackout" period would make it more difficult for directors to exercise stock options they are given as part of their remuneration package.
The change will not be good for those companies that use stock options to reward their directors, Wong said.
Meanwhile, Lo said a stock- exchange plan to make main board-listed companies issue quarterly management updates could mislead investors.
"The move would make management more shortsighted," Lo said. "Releasing unaudited operational information may mislead the market."
The stock exchange is considering introducing Britain-style quarterly reporting for main board companies, which would require them to issue quarterly management discussions on the state of the company without providing exact results figures.
The stock exchange conducted a market consultation on the proposal last year. In October, the exchange said it "continues to work with the SFC on implementation of the consultation conclusions regarding quarterly financial reporting."
Wong said the proposal for quarterly reporting would increase the costs of being a listed company, which he said is not a good idea given the current market environment.
"It will also distract management's focus onto preparing the quarterly report, making it harder for them to focus on the business," Wong added.