HK to come down hard on IPO misconduct

City's regulator steps up policing amid spike in complaints against publicly traded companies

HONG KONG • The world's second- largest market for new listings this year, Hong Kong is planning to step up its efforts to police misconduct by sponsors of such initial public offerings (IPOs).

The Securities and Futures Commission (SFC) will bring more cases against IPO sponsors, or financial institutions that sign off on listings, said Mr Thomas Atkinson, the regulator's executive director of enforcement, yesterday.

The SFC is boosting its supervision of new listings amid a spike in complaints against publicly traded companies in recent years.

Inexplicably high valuations, excessive shareholding concentrations and trading volumes that collapsed after some IPOs were among problems highlighted by the SFC's chief executive officer Ashley Alder earlier this week.

Mr Alder had also said the number of inquiries into market manipulation and insider trading has doubled in recent years, making it necessary to change listing rules in the Asian financial hub, disputing claims from critics that changes would "stunt" the local equities market.

"To put it very lightly, the conduct and level of professionalism demonstrated by some sponsors has left a lot to be desired," Mr Atkinson told the Thomson Reuters Pan-Asian Regulatory Summit.

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To put it very lightly, the conduct and level of professionalism demonstrated by some sponsors has left a lot to be desired. You can expect to see some more of these cases... hopefully, we'll hold these firms and the senior management accountable.

MR THOMAS ATKINSON, the executive director of enforcement at Hong Kong's Securities and Futures Commission, on misconduct by IPO sponsors or financial institutions that sign off on listings.

"You can expect to see some more of these cases... (and) hopefully, we'll hold these firms and the senior management accountable."

The commission on Nov 1 alerted Standard Chartered that it intends to take action against a unit of the British bank in relation to its role as a joint sponsor of an IPO in 2009.

Last month, UBS Group said it could be fined and suspended from arranging first-time share sales in Hong Kong.

The securities watchdog introduced a system in October 2013 where sponsors of an IPO will be held accountable if the offer documents contain untrue statements.

It has also warned that bankers on such deals can be held criminally liable.

In 2012, the SFC said a stricter regime, with unambiguous criminal and civil liability, was needed to protect investors after a string of accounting scandals involving publicly traded Chinese companies.

"We are particularly concerned about risks posed by corporate fraud and misfeasance, market manipulation and intermediary misconduct," Mr Atkinson said.

More than HK$200 billion (S$36 billion) in value has been wiped from the Hong Kong bourse because of these wrongdoings, he said, without specifying a period.

"These cases not only caused immense losses to investors, they also severely damaged the integrity and reputation of the Hong Kong markets," he said. "I also want to emphasise that our enforcement actions will focus on holding individual wrongdoers accountable for their misconduct."

The regulator also proposed an overhaul of listing rules in June that critics said would curb the regulatory powers of the city's stock exchange and hand more authority to the SFC. While the SFC had said new rules would speed up decision- making for new listings, the proposed changes pitted international asset managers, who favoured the changes, against the city's banks and The Chamber of Hong Kong Listed Companies, a body that represents locally listed companies.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on November 10, 2016, with the headline 'HK to come down hard on IPO misconduct'. Print Edition | Subscribe