SEHK on the Web

In a long-awaited move advocated by Webb-site.com since 1999, the Stock Exchange of Hong Kong has announced plans to require full web-based disclosure for main board-listed companies through its web site. We fill in the blanks behind the proposals and note that there is still some way to go with other company filings such as shareholder circulars and reports.

SEHK Moves to Web Disclosure
26th April 2001

In a long-awaited and very welcome move, the Stock Exchange of Hong Kong (SEHK) has announced that it will require all formal announcements by main-board listed companies to be published in electronic form on its web site. The implementation date was not stated, but the SFC has already approved the change to the listing rules, so it should be soon. The second-board GEM market already requires this on its own web site. Sources tell Webb-site.com that we should also expect the two platforms to be merged into one web site in the not too distant future.

In a separate announcement, the Exchange announced plans to discontinue the requirement for newspaper announcements "by the second quarter of 2002". With internet penetration rates in Hong Kong now well over 50%, this move is likely to be a net benefit for investors as they get more rapid disclosure, their companies will save money on newspaper announcements and investors don't have to buy newspapers just to find out what their companies are saying. For those investors who do not have internet access, there are public libraries and internet cafes which can provide it, and walk-in brokerages are sure to follow suit.

Background

At present, all main-board company announcements are required to be published in English and Chinese, each in at least one daily Hong Kong newspaper of the corresponding language. In practice, that is a lot easier for those investors who read English, as they only have to search the South China Morning Post and the Hong Kong i-Mail, our only two English language local dailies.

Of course, the paper with the lowest circulation tends to have the lowest advertising rates and hence attracts the most announcements - which are then the least widely read because they are in the lowest circulation newspaper.

For those who can only read Chinese, it theoretically meant buying an awful lot of newspapers every day to see all the announcements. In practice, few people bothered. But whatever your language, there was the practical problem that newspapers are not easily archived, are not machine-searchable and get thrown away with the garbage. Webb-site.com maintains several filing cabinets full of such announcements as it was the only way to get a complete archive.

The SEHK does have a partially-built online news archive, but it only goes back to 1-Apr-99 (this is no joke) and has been severely lacking. For example, take the results announcements. Picking a company at random, the online version of Guangzhou Pharmaceutical's 2000 results statement this week looks like this, while the printed version in the next morning's newspaper ran to four tabloid pages of fine print and included full financial statements, a Chairman's statement, prospects and so on. The online version is what we call "teletext format" and dates back to at least the 1980s.

For overseas investors, the situation was particularly unfair, since they did not have access to HK newspapers until they arrived by plane or somebody copied them and faxed them over. Instead, they relied on second-hand summaries from brokers. A number of international brokerages to this day spend a lot of time just re-writing newspaper stories and calling it their "morning report" which is then faxed or e-mailed to overseas clients.

Madcap proposal aborted

In Sep-99, we covered the SEHK's madcap "distributed disclosure" scheme to have each listed company publish the results on their own web site - in other words, to find all of the announcements you would need to continually search over 800 separate web sites (and hope that they were still on line and in a file format that you could read). We strongly criticised the SEHK for ducking its public duty and urged them to provide a centralised standardised platform for dissemination of all listed company documents.

Well, these things never happen fast, but the SEHK published a consultation paper in Apr-00 scrapping the distributed scheme in favour of a centralised scheme and requested all listed companies to participate in a trial run from 10-Apr-00, excluding results announcements. Most have complied. The consultation period closed on 20-May-00, and 11 months later the results were published.

Access must remain free

The new listing rules require all announcements to be filed electronically and published on the SEHK web site.

We do hope the SEHK will resist any temptation to charge for this service and abuse its monopoly over the collection of this data. Disclosure and listing regulation are something which investors already pay for through a 0.005% levy (half of the current transaction levy) and they should not have to pay twice. To impose a charge for information on listed companies would result in the smaller investors who have not established an account with SEHK from simply trading without access to information - a recipe for poor uninformed investment decisions.

Competition

In the USA, the disclosure function is handled by the government's Securities and Exchange Commission (SEC) which has required on-line filing since 1996. All information is collected and stored on a central database called EDGAR, and private-sector information providers have access to this database and often present the information in a more user-friendly format. For example, see FreeEdgar and 10-K Wizard.

Hong Kong Exchanges and Clearing, which owns the SEHK, is a listed for-profit monopoly. We argued at the time of its creation that the cost-centre regulation of listed companies should have been transferred to the Securities and Futures Commission. We believe that eventually this will happen (probably after another crisis), but in the meantime there is no reason why the SEHK should have the monopoly on access to the news it collects.

To incentivise innovation in the way the information is presented, the SEHK should provide open access to the raw file submissions of listed companies, so that online media can present the information on their own sites. There can be no argument that the SEHK has copyright on any of this - the announcements are regulatory filings by companies and are not the property of the SEHK.

What about other documents?

The announcement of the new plan did not make any mention of other company disclosures such as circulars to shareholders, annual reports and interim reports. We urge the SEHK to include all these filings as part of the online disclosure requirement. There is no reason why this cannot happen, since all printers these days work with electronic typesetting and can easily produce "Acrobat" versions for online publication, as they do for the GEM.

Directors' appointments

One loophole that needs closing is the disclosure of appointments and resignations of directors. Currently the listing rules to do not require a formal "announcement" to be made, but just that the changes be "made public by means of a press release or such other method as the Issuer thinks fit". So the online disclosure will not capture these press releases. There is also no requirement to provide a biography, so often you just see a name and a date of appointment. The biography requirement is in the annual report, but if a newly appointed director resigns before the next annual report, he or she can avoid that requirement too. With director's biographies highly topical at present, it would be a good time to improve this disclosure.

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SEHK Moves to Web Disclosure 26th April 2001