Long overdue ruling on share price swings

Update time:2016-04-14  source:

A new stock exchange rule requiring listed companies to request trading suspension and issue a statement of clarification in the event of sudden and irregular price movements didn't come as a surprise.


What's surprising is that such a rule was not already in existence. The question is why has it taken such a long time for the exchange to introduce a rule that has already been enforced in most other major capital markets for years?


This question touches on the core issue of investor protection, especially the protection of the rights of minority shareholders. The stock exchange, which is a public listed company controlled by its stockbroking members, is sometimes seen to lean toward minimal restriction to preserve a free-market environment.


There is nothing wrong with this general principle, especially in Hong Kong where official intervention of any form is often viewed with great suspicion. For that reason, trading suspension is frowned upon because it denies shareholders a chance to sell out when they smell trouble.


In the past, most listed companies voluntarily requested suspension in the trading of their shares ahead of major announcements or in the event of rumor-fueled trading that resulted in wide price fluctuations. Such requests were made as a matter of proper corporate governance.


But in recent years, more and more listed companies have ignored their fiduciary duties to shareholders by either turning a blind eye to irregular movements in their share prices or issued perfunctory statements denying any knowledge of the reasons behind those movements. Some companies even tried to stonewall any request for clarification by citing the tiresome clich of: "We don't comment on market rumors."


The managements of these companies have been allowed to get away with such a cavalier attitude for much too long.


The new rule has gone one step further by requiring listed companies to issue statements that are neither false nor misleading.


Such a requirement is clearly laid out in the exchange's guideline, which states that trading suspension will be extended when, for example, "the clarification announcement contains information materially inconsistent with its other published documents, or contains information which creates market confusion."


For many investors, such a rule was long overdue.