The Stock Exchange of Hong Kong, soon to be part of a profit-making listed entity, has proposed that listed companies be required to publish their corporate documents on their own web sites. We see this as a blatant attempt to relinquish responsibility for the centralised publication and storage of information, a responsibility that the Exchange has yet to fulfill.

SEHK Ducks Publication Duty
16 September 1999

In an announcement on 13-Sep-99, the Stock Exchange of Hong Kong said it proposed that all listed companies should be required to have their own web site. The announcement stated:

"It is intended that the website should contain all of the listed issuer's listing-related announcements, circulars, interim and annual reports and results and other items currently required under the Exchange Listing Rules to be published in the newspapers or sent to its shareholders, in addition to any other information which a listed issuer may wish to place on its website."

At Webb-site.com, we see this as a blatant attempt by the SEHK to relinquish responsibility for the centralised publication and storage of information on the companies it lists. We are all in favour of listed companies publishing web sites and improving disclosure, and this practice should be encouraged, but what we need most is a central information warehouse for the formal reports, announcements and circulars which are produced under the listing rules.

A History of Poor Disclosure

Hong Kong has suffered, and continues to suffer, from a lack of access to published information on listed companies. Company announcements, for example, appear in the newspapers (if you buy the right one) and are then thrown out with the garbage. The Stock Exchange does not maintain an archive of these announcements for public access, either in hard copy or soft (electronic) form. At Webb-site.com and at research houses all over town, we each have to maintain our own hard-copy library of these announcements in order to know what has happened since the last annual report. Maintaining a library is not something the general public has the time or inclination to do. We also waste time and space collecting our own library of hard-copy annual reports and circulars.

So the general public trades on rumour and erroneous press reports. The SFC and SEHK are constantly asking companies to explain movements in their share prices, but they seem to ignore the fact that rumour is all that most people have to go on. Give people the facts, readily accessible, and rumours will be less influential on prices.

Annual Reports

Recently the SEHK has made available for sale CD-ROMs of annual reports and shareholder circulars, but these lack the immediacy of the internet, and the storage is in the crudest form - a low-resolution black and white scanned image which is not always legible when companies have used colour art work. It is like looking at third-generation faxes. Currently the latest CD-ROM only contains reports for periods ended in 1997 and circulars published in 1998. That's ancient history - good for historians and journalists, but of limited use for most investors. And it's not on the web - we each have to buy our own set of CDs, lovingly burnt onto Recordable CDs at HK$2,400 per set (or HK$1,800 for circulars). Don't expect to find them in HMV.

There is a start-up web site called AnnualReport.com.hk, which has a limited number of more recent annual reports on-line in the Portable Document Format (PDF) which can be read by free Adobe Acrobat readers. That's the same format used by the Stock Exchange of Singapore. Congratulations to the start-up, but we should not be relying on the private sector to do something which only needs to be done once. Private companies can go in and out of business, and introduce charges for their services, while the SEHK will be in operation as long as it has a stock exchange to run.

Singapore sets a standard

For an example of how an exchange should publish information, look no further than the home page of the Stock Exchange of Singapore (SES). There you will find a centralised electronic archive of prospectuses, annual and interim reports, shareholder circulars and announcements, updated in real time. It's not perfect, but it is streets ahead of Hong Kong's system. 

Not only that, but the SES also provides free real-time quotes and historic share price graphs for every stock in Singapore. In Hong Kong, real-time data is charged for and available only to information vendors for resale to the public, while historic data is available only on CD-ROMs at prices out of reach of the general public (HK$2,000 per quarter-year for daily prices). The SEHK does not even calculate adjusted historic stock prices (with adjustments for bonus issues, stock splits and so on), leaving information vendors to figure this out independently. So charts may differ from one vendor to another.

Another example is in the USA, where all regulatory filings can be found (in plain text format) at the EDGAR system maintained by the Securities and Exchange Commission. Other companies have produced better interfaces to the system, such as FreeEdgar.com.

What we Need

The proposal by the SEHK to require companies to publish their own documents on web sites is a recipe for chaos. Each company may use a different format, very few of the documents would be machine readable, and there will always be some sites out of action, particularly if the listed company in question is not paying its bills due to financial difficulty. That is often the time when their share prices are most volatile as they effectively become options on survival. That's when we need information most.

So we need a centralised on-line database, sponsored by the SEHK, which should include:

The reports and circulars should be made available in a standardised format such as PDF or HTML/XML.

The SEHK has shown through its lethargic progress over the years that it lacks the internal ability to produce such a site. Therefore it should publish a specification, invite tenders, and sub-contract the site maintenance on a regular short-term contract basis, perhaps 2 years at a time.

The costs of running the site should be met out of listing fees and transaction levies. Better corporate transparency tends to lead to a higher quality market, which should increase both of these revenue streams in the long run. We can't help wondering whether the Exchange's proposal is partly motivated by a desire to reduce costs and maximise profits as a listed entity. By seeking to bounce all the publication responsibility back to the listed companies, it avoids incurring costs itself.

Until we have better access to published information, the Exchange and the SFC have no right to complain about people trading on rumours.

Related article

Opacity, the Asian Way? - Claire Barnes, Apollo Investment Management, 16-Sep-99.

© Webb-site.com, 1999

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