Any tardiness by listed firms in announcing share trades could hurt investor confidence
By Goh Eng Yeow 24 August 2009
For the ‘caveat emptor’ or ‘buyer beware’ regime in our stock market to function smoothly, listed companies must be prepared to make important disclosures in a timely fashion.
Ideally, this enables investors to make well-informed decisions on whether they should buy or sell a stock, based on the information supplied by the company.
But the listing manual of the Singapore Exchange (SGX) can only go so far in spelling out what a listed firm and its management should do in terms of material disclosure. Ultimately, it is still up to the company to make sure that the information is disseminated to investors judiciously.
What the SGX can do as the regulator is to ensure that listed companies adhere strictly to its listing manual. Failing that, the bourse operator must mete out pain in the form of a reprimand or even delisting, if they fail to comply.
To this end, the SGX has taken its duties seriously.
During the recent Airocean trial, in which three former directors were charged with having breached their duties, the SGX shed some light on how it monitored listed firms with regard to their compliance with its listing manual.
In Airocean’s case, Ms Lorraine Chay, then the SGX team head looking after the freight forwarder’s compliance issues, even sought meetings with the board of directors to clarify certain announcements made by the firm.
That is not all. Apart from routine monitoring of announcements, during the recent corporate reporting season, the SGX asked some listed firms to give more details of their results.
This should, in turn, give investors a better handle on making informed decisions about what to do with their investments in those companies.
Still, there are areas on corporate disclosure which could be improved.
While the financial health of a firm is closely monitored by analysts, investors also put great store on the trading of its shares by its top management and substantial shareholders.
What better show of faith by a boss than to invest his own cash in the business he is running?
The importance of such insider dealings is reflected by the weekly reports highlighting such transactions by local brokerages, foreign research houses and the financial media.
But unlike other compliance issues, the disclosure of the trading of shares is fairly clear-cut, given the safeguards which have been put in place.
The Companies Act requires a substantial shareholder who has bought or sold a tranche of shares to notify the company within 48 hours of the transaction.
Separately, the Securities and Futures Act requires a substantial shareholder to disclose any changes in his shareholdings in a listed firm to the SGX.
It is surprising, to say the least, that there is still tardiness in compliance, even though it is by far one of the simplest rules to satisfy.
Take sportswear maker China Hongxing Sports - a favourite counter among retail investors and on the ‘buy’ list of many brokerages until the global financial crisis soured investors’ appetites on China plays. Two weeks ago, it came out with a routine one-page announcement that a substantial shareholder, JF Asset Management, had ceased to be a substantial shareholder, after paring its stake by more than half to 4.08 per cent.
But the company’s disclosure came five months late. JF Asset Management had sold 126.55 million China Hongxing shares - a huge number by any reckoning - between Jan 8 and Feb 27, as it trimmed its shareholdings to 108.5 million shares.
Yet, the announcement of its sales was made by China Hongxing only on Aug 6.
The delay has also meant that the shareholding statistics released in the company’s latest annual report are wrong as well. It had reported that, as of March 19, JF Asset Management held 235.05 million shares in the company.
What is surprising is a lack of effort by China Hongxing to explain the lengthy disclosure delay. Investors are left wondering which party was at fault for the foot-dragging.
Market-watchers argue that the SGX should have pressed for an explanation, considering the importance which investors attach to insider trades.
This is considering that one week later, when China Hongxing released its half-year financial statements, SGX had asked it for more details on a host of issues relating to the results.
Surely, it is good housekeeping for the SGX to insist on strict compliance on simple issues like insider trades? This would keep listed firms on their toes and ensure that they dutifully make timely disclosure on other issues as well.
Traders are also unhappy about repeated breaches on such a simple requirement. They noted, for instance, that in 2006, another mainland play, China Sun Bio-chem Technology, was four months late in reporting the sales of its shares by Temasek Holdings. It had made the disclosure belatedly, only as it was preparing its annual report.
In the past few months, there has been a growing campaign to look at issues like the role of independent directors to see how small investors’ interests can be better protected. What is more urgently needed: better enforcement on basic rules like getting disclosures on a substantial shareholder’s transactions out in a timely manner. This would go a long way towards boosting investor confidence over the disclosure-based regime now in place in our stock market.
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Timely disclosure must be enforced
Any tardiness by listed firms in announcing share trades could hurt investor confidence
By Goh Eng Yeow
24 August 2009
For the ‘caveat emptor’ or ‘buyer beware’ regime in our stock market to function smoothly, listed companies must be prepared to make important disclosures in a timely fashion.
Ideally, this enables investors to make well-informed decisions on whether they should buy or sell a stock, based on the information supplied by the company.
But the listing manual of the Singapore Exchange (SGX) can only go so far in spelling out what a listed firm and its management should do in terms of material disclosure. Ultimately, it is still up to the company to make sure that the information is disseminated to investors judiciously.
What the SGX can do as the regulator is to ensure that listed companies adhere strictly to its listing manual. Failing that, the bourse operator must mete out pain in the form of a reprimand or even delisting, if they fail to comply.
To this end, the SGX has taken its duties seriously.
During the recent Airocean trial, in which three former directors were charged with having breached their duties, the SGX shed some light on how it monitored listed firms with regard to their compliance with its listing manual.
In Airocean’s case, Ms Lorraine Chay, then the SGX team head looking after the freight forwarder’s compliance issues, even sought meetings with the board of directors to clarify certain announcements made by the firm.
That is not all. Apart from routine monitoring of announcements, during the recent corporate reporting season, the SGX asked some listed firms to give more details of their results.
This should, in turn, give investors a better handle on making informed decisions about what to do with their investments in those companies.
Still, there are areas on corporate disclosure which could be improved.
While the financial health of a firm is closely monitored by analysts, investors also put great store on the trading of its shares by its top management and substantial shareholders.
What better show of faith by a boss than to invest his own cash in the business he is running?
The importance of such insider dealings is reflected by the weekly reports highlighting such transactions by local brokerages, foreign research houses and the financial media.
But unlike other compliance issues, the disclosure of the trading of shares is fairly clear-cut, given the safeguards which have been put in place.
The Companies Act requires a substantial shareholder who has bought or sold a tranche of shares to notify the company within 48 hours of the transaction.
Separately, the Securities and Futures Act requires a substantial shareholder to disclose any changes in his shareholdings in a listed firm to the SGX.
It is surprising, to say the least, that there is still tardiness in compliance, even though it is by far one of the simplest rules to satisfy.
Take sportswear maker China Hongxing Sports - a favourite counter among retail investors and on the ‘buy’ list of many brokerages until the global financial crisis soured investors’ appetites on China plays. Two weeks ago, it came out with a routine one-page announcement that a substantial shareholder, JF Asset Management, had ceased to be a substantial shareholder, after paring its stake by more than half to 4.08 per cent.
But the company’s disclosure came five months late. JF Asset Management had sold 126.55 million China Hongxing shares - a huge number by any reckoning - between Jan 8 and Feb 27, as it trimmed its shareholdings to 108.5 million shares.
Yet, the announcement of its sales was made by China Hongxing only on Aug 6.
The delay has also meant that the shareholding statistics released in the company’s latest annual report are wrong as well. It had reported that, as of March 19, JF Asset Management held 235.05 million shares in the company.
What is surprising is a lack of effort by China Hongxing to explain the lengthy disclosure delay. Investors are left wondering which party was at fault for the foot-dragging.
Market-watchers argue that the SGX should have pressed for an explanation, considering the importance which investors attach to insider trades.
This is considering that one week later, when China Hongxing released its half-year financial statements, SGX had asked it for more details on a host of issues relating to the results.
Surely, it is good housekeeping for the SGX to insist on strict compliance on simple issues like insider trades? This would keep listed firms on their toes and ensure that they dutifully make timely disclosure on other issues as well.
Traders are also unhappy about repeated breaches on such a simple requirement. They noted, for instance, that in 2006, another mainland play, China Sun Bio-chem Technology, was four months late in reporting the sales of its shares by Temasek Holdings. It had made the disclosure belatedly, only as it was preparing its annual report.
In the past few months, there has been a growing campaign to look at issues like the role of independent directors to see how small investors’ interests can be better protected. What is more urgently needed: better enforcement on basic rules like getting disclosures on a substantial shareholder’s transactions out in a timely manner. This would go a long way towards boosting investor confidence over the disclosure-based regime now in place in our stock market.
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