Hong Kong’s markets watchdog has received inquiries on dozens of cases of suspicious price movements in stocks during rights issues or private placement deals in the past few years, according to the Hong Kong Economic Journal.
In the last few years, the Securities and Futures Commission (SFC) has on average dealt with about 25 to 30 inquiries related to stock price volatility around the time of rights issues or open offers carried out by listed companies, the report said, citing Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung.
Many of these cases concern suspected insider dealing activities or short-selling ahead of a large deep-discounted rights issue, Chan said.
Nonetheless, no evidence was found to launch legal action in most of the cases.
“Most investigations do not lead to enforcement action being taken because the evidence is insufficient to prove that an offence has been committed to the standard required by Hong Kong’s court or tribunals; key witnesses are not available; other evidence is missing; or the suspected manipulator cannot be identified,” Chan said.
Chan was said to have made the remarks in a written reply to a query from lawmaker Starry Lee Wai-king.
Amid concerns over malpractices during right issues and private placements, when connected parties could try to reap financial gains by timing their share purchases or exercise of stock options, the SFC had in 2012 and 2013 called on the stock exchange to review its policy on rights issues, Chan said.
The watchdog suggested that listed companies should be directed to sell all unsubscribed options to rights issues and distribute the proceeds proportionately to shareholders not participating in the issue.
The listing committee of Hong Kong Exchanges and Clearing Ltd. (00388.HK), however, refused to tighten the rules, arguing that instances of abuse of the mechanism are merely isolated cases.
Independent commentator Davd Webb has criticized the committee for not offering good representation for the ordinary investor. The panel instead may be serving the needs of vested interests, he said.
Translation by Vey Wong
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