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Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):
Question:
Will the Government inform this Council :
(a) of the listed companies which are being suspended from trading by order of the Securities and Futures Commission or the Stock Exchange of Hong Kong Limited, together with the reasons and the commencement dates for their suspension; and
(b) how it will protect the interests of shareholders of the companies concerned during their suspension of trading?
Reply:
Madam President,
(a) Suspension of stock trading may be initiated by the issuer of the stock or by the Securities and Futures Commission ("SFC") and the Stock Exchange of Hong Kong ("SEHK") under Rule 9 of the Listing Rules. From the beginning of 1998, there have been a total of 118 suspensions, of which only one suspension was initiated by the SFC and another three by the SEHK. The remaining 114, or 97%, were in fact requested by the issuers of the stock.
As of 10 July 1998, there were a total of 17 shares being suspended from trading on the SEHK. A list of these companies with the date and reason of suspension is at Annex. Most of the suspensions would normally resume trading within one to two days after proper disclosure of information. Where suspension has lasted for more than three months, details of the cases in question would be put on the "Prolonged Suspension Status Report" published by the SEHK on a monthly basis for public information and market transparency.
(b) As a matter of general principle, to protect the general investing public and to ensure the integrity of securities markets, their operators and regulators have a duty to ensure that the marketplace is fair and in order, and that trading thereon is undertaken on a fully informed basis. Where trading in a particular stock fails to meet such requirements, a standard practice adopted by markets all over the world is to suspend trading in the stock to protect the interests of investors. In Hong Kong, the SFC and SEHK have statutory responsibilities for the market and co-ordinate closely on the policy of suspension.
The SFC and SEHK have clear criteria under which the trading of a stock should be suspended. These criteria, which have been presented in the form of an information paper to the Financial Affairs Panel of the Provisional Legislation Council ("PLC") at its meeting on 11 September 1997, and repeated again in our reply to a question raised at the sitting of the PLC on 4 March 1998, include :
(i) Material corporate activities whereby price-sensitive information cannot be disclosed in a timely fashion, e.g. company is subject to an offer, contemplating a rights issue, arranging a placement, having substantial changes in the nature, control or structure of the company. In general terms, such suspensions rarely last longer than a couple of days.
(ii) Fundamental concerns about the company's suitability for continued listing and/or trading, e.g. the company is going into receivership or liquidation, has no operations or business, is experiencing financial or cash flow difficulties or is involved in material litigations or investigations. Under these circumstances, the suspension would only be lifted if such concerns have been satisfactorily addressed. As it takes time to resolve such concerns, it is quite common for these companies to be suspended for a longer period of time.
(iii) Unexplained unusual movements in the price or trading volume of the company's listed securities. This may be caused by the uneven dissemination or leakage of price-sensitive information in the market or because the market in the stock is being deliberately manipulated. The stock will normally not remain suspended pending completion of the investigation by the SFC where deemed necessary even where insider trading or market manipulation is suspected. However, where the SFC is not satisfied that the market in the stock will be fair and orderly if the stock is allowed to resume trading, discussions will be held with the parties concerned to find a way of resolving the matter to enable the stock to resume trading.
The objective of suspension is to ensure a fair, orderly and fully informed market to preserve the integrity of the market and to protect the investing public. This can protect more investors from entering into trade without fair access to market information which is essential to their investment. In carrying out such duties, both the SEHK and the SFC are also keenly aware of the need for and the desirability of maintaining a continuous market. Every effort is therefore made to strike a proper balance between the two opposing requirements and to keep the duration of suspension to the minimum required.
Following a recent review of the practice relating to suspension due to the listed companies' financial difficulties, the SEHK announced a policy on resumption of trading in securities of listed companies on 25 February 1998 to further enhance the transparency and certainty of the suspension regime. Under the new policy, as long as adequate and appropriate disclosure on the latest financial position is made and that there is no price-sensitive information that has not been disclosed, trading in the listed companies' securities may be resumed.
End/Wednesday, July 15, 1998
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