The Webb-site concentration screen
22nd January 2010

Webb-site.com today announces the launch of a new function in the Webb-site CCASS Analysis system, for investors to check on the concentration of shareholdings in listed companies. CCASS, or Central Clearing and Automated Settlement System, is the book-entry system and central depository used to settle virtually all trades on Hong Kong's Stock Exchange.

As many investors will be aware, Hong Kong's Securities and Futures Commission occasionally puts out announcements regarding the concentration of ownership in HK-listed companies. The SFC used to do this by the circuitous route of informing the stock exchange, which then informed the relevant listed company, which then eventually made an announcement to the Stock Exchange, but since July 2009, the SFC has also been making direct announcements to speed things up. The SFC has access to beneficial ownership information held by brokers, banks and custodians, so they can dig deeper than the public can.

However, such warnings from the SFC are fairly rare, and we are not aware that they have any comprehensive screening system to scour the market for potential problems. Rather, they wait for people like us to alert them, and then they launch an investigation. Many of their past ownership investigations and concentration warnings have been triggered by requests quietly filed by Webb-site.com.

So to speed this process up, our database will now tell you and the SFC, for each day since 26-Jun-07 (when our records begin) and for each stock:

• the percentage of the shares in CCASS, excluding unnamed (or "Non-Consenting") Investor Participants (NCIPs), which are held by the top 5 CCASS accounts.
• the percentage of the shares in CCASS, excluding NCIPs, which are held by the top 10 accounts
• the percentage of the shares in CCASS, including NCIPs, held by the top 10 accounts plus NCIPs
• the percentage of the company which is in CCASS, based on the latest number of issued shares published by HKEx

The results for each day can be sorted by any of the above statistics (just click on the column-headings), with the third one (top 10+ NCIPs) being the default. You'll find our CCASS Analysis system, and many more goodies, in the Webb-site database.

For each day's concentration screen, you can click on the name of the stock to see the CCASS holdings for that day, or you can click on the "history" link against each stock to see how the concentration in that stock has changed over time. Within each history page, click on the date to see the holdings on that date.

Keep in mind that there are several different types of CCASS account. Custodians, whose CCASSID is prefixed by "C", usually hold shares for institutional investors. Stockbrokers, prefixed by "B", usually hold shares for clients and/or for their own account. So each of those may represent numerous beneficial owners. However, this is the best we can do with public data and allows you a good idea of where the concentrations may lie. Investor Participants are direct beneficial interests of individuals and companies with their own accounts in the CCASS system, including your editor and the National Social Security Fund. Most IPs do not consent to their names being disclosed by HKEx, so these are aggregated under one line for NCIPs. For a quick look at what stocks Investor Participants hold, see our daily IP holdings page.

Concentrated holdings tend to make stock prices more sensitive to an increase in volume, as they are more tightly held. That can work both ways, down as well as up. Some undervalued small-cap stocks in which your editor invests are tightly held by value investors, with a high CCASS concentration, and liquidity comes in bursts when someone decides to sell. Similarly, some mid-caps or large-caps which have become institutional or hedge-fund "darlings" and been chased up, are also high on the concentration list, with most of the stock held by custodians.

To get things rolling using this screening system, we have this week filed a number of requests with the SFC for investigation of possible concentrations of ownership and will step up the pace of those. These include: Bauhaus International (Holdings) Ltd (483), Bloomage BioTechnology Corp Ltd (0963), Melbourne Enterprises Ltd (0158), Samson Holding Ltd (0531), Southeast Asia Properties & Finance Ltd (0252), Tan Chong International Ltd (0693) and Tern Properties Co Ltd (0277).

In our view, disclosure is the best regulatory response to concentrations of ownership. We don't favour suspensions, as this would just trap existing minority shareholders through no fault of their own. The concentration is usually not within the control of the listed company itself, and therefore it is impractical to require them to do anything about it. Disclosure of concentrations puts investors on notice that the stock price is less likely to be an accurate reflection of fair value for a company's stock, whether overvalued or undervalued.

Our CCASS records and analysis are subject to the limitations and disclaimers in these notes.

© Webb-site.com, 2010