14 December 2018

Importance of timely disclosure of inside information by Hong Kong listed companies

Author: John Baptist Chan

Since implementation of the inside information regime in January 2013, the Securities and Futures Commission (SFC) has conducted regular reviews of corporate announcements including inside information announcements. Those announcements often relate to profit alerts or profit warnings.

Over the years, the SFC has commenced a number of proceedings in the Market Misconduct Tribunal (MMT) against listed companies for breach of obligations under the inside information regime. The MMT first made a finding of breaches of the disclosure obligations imposed on listed companies in November 2016, in the case of AcrossAsia Limited (delisted since 13 June 2017, previously listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited with stock code: 8061). There, the former chairman and former chief executive officer failed to disclose inside information as soon as reasonably practicable about a petition filed by AcrossAsia’s subsidiary and major creditor against AcrossAsia and a related summons[1].

In this client alert, we will look at a recent case where the SFC has again commenced proceedings in the MMT against a listed company for its failure to make timely disclosure of price sensitive inside information.

Listed companies are reminded of the importance of ensuring compliance with the provisions of Part XIVA of the Hong Kong Securities and Futures Ordinance (Cap. 571) (SFO) as well as the relevant provisions under the listing rules relating to the general obligation of disclosure[2]. This includes disclosing inside information which has come to their knowledge as soon as reasonably practicable.

Company A

The SFC announced on 29 November 2018 that it had commenced proceedings in the MMT against Company A, a company listed on the Main Board of The Stock Exchange of Hong Kong Limited, for alleged failure to disclose price sensitive information as soon as reasonably practicable back in 2015[3].

Company A was known as a different name when the alleged breach of the statutory corporate disclosure requirements occurred.

The SFC also commenced proceedings in the MMT against Company A’s chairman, chief executive officer and executive director (Relevant ED) for his alleged reckless or negligent conduct, in causing the alleged breach by Company A of the provisions of the statutory corporate disclosure regime.

On 23 July 2015, Company A issued a profit warning announcement in which it stated that the revenue and the profit of the Company A for the six months ended 30 June 2015 were expected to decrease by approximately 11% and 36%, respectively, as compared with the corresponding period in 2014. Following the publication of the profit warning, Company A’s share price closed at HK$16.94 on 24 July 2015, representing a decrease of 21.6 % when compared with the previous closing price.

The SFC found that in mid-June 2015, the consolidated management accounts of the Company A group for the first five months of 2015 revealed that both the revenue and the net profit had significantly decreased by 13.7% and 28.9%, respectively, when compared with the corresponding period in 2014. This information about the financial deterioration came to the knowledge of Company A and the Relevant ED on or around 23 June 2015. However, Company A did not disclose such information to the public until 23 July 2015, which was one month after Company A and the Relevant ED had information of the deterioration.

The SFC took the view that the information about the financial deterioration was specific information regarding Company A, price sensitive and not generally known to the public at the material time. Had the information been known to the investing public, it would have been likely to materially affect the share price of Company A.

Other market misconduct proceedings over late disclosure of inside information commenced by the SFC in 2018

The Company A case is one of three market misconducting proceedings over late disclosure of inside information so far commenced by the SFC in 2018.

In May 2018, SFC commenced MMT proceedings against Magic Holdings International Limited (Magic Holdings) and its directors for late disclosure of inside information[4]. This case related to the late disclosure of inside information regarding a potential acquisition of Magic Holdings’ shares by L’Oreal S.A. in 2013. Disclosure was made only five months after a preliminary agreement had been reached.

In April 2018, SFC commenced MMT proceedings against Fujikon Industrial Holdings Limited (Fujikon) and its senior executives for late disclosure of inside information[5]. This related to alleged late disclosure of inside information regarding the discontinuance of headphone production for one of the company’s top customers in 2014. Disclosure was made seven weeks after senior management was aware of the discontinuance.

Monitoring of corporate conduct of listed companies including inside information announcements

Monitoring of corporate conduct of listed companies continues to be one of the regulatory activities conducted by the SFC to safeguard the interest of investors. Since implementation of the inside information regime in January 2013, the SFC has conducted regular reviews of corporate announcements including inside information announcements. Over the years, SFC has issued a number of updates on the trends seen in inside information disclosure by listed companies and SFC’s concerns[6]. The commencement of MMT proceedings against Company A represents SFC’s continued effort in this regard.

Timely disclosure of inside information

Listed companies are reminded of the importance of ensuring compliance with the provisions of Part XIVA of the SFO, as well as the relevant provisions under the listing rules relating to general obligation of disclosure[7].

SFC often reminds listed companies that timely and non-misleading disclosure of inside information is central to the orderly operation of the market and underpins the maintenance of a fair and informed market. When making the announcements, companies should bear in mind that the announcements should aim to help investors understand the company’s actual situation. The SFC encourages listed companies to publish informative announcements which are also clear and concise.

The SFC published Guidelines on Disclosure of Inside Information in June 2012[8] and issued an FAQ on disclosure of inside information in December 2014[9] to assist listed companies with their compliance obligations regarding disclosure of inside information under Part XIVA of the SFO.



[1] “MMT ruling on AcrossAsia and enforcement efforts” in SFC, Corporate Regulation Newsletter, Issue no. 4, December 2016

[2] Rule 13.09 of the Rules governing the listing of securities on The Stock Exchange of Hong Kong Limited and rule 17.10 of the Rules governing the listing of securities on GEM of The Stock Exchange of Hong Kong Limited

[3] SFC’s notice commencing the MMT proceedings against Company A dated 16 November 2018

[4] SFC commences MMT proceedings against Magic Holdings International Limited and its directors for late disclosure of inside information, 15 May 2018

[5] SFC commences MMT proceedings against Fujikon and its senior executives for late disclosure of inside information, 10 April 2018

[6] See for example “Better quality in disclosure- use of percentages”, “Trends in inside information disclosure” and “MMT ruling on AcrossAsia and enforcement efforts” in SFC, Corporate Regulation Newsletter, Issue no. 4, December 2016 and “Disclosure matters” in SFC, Corporate Regulation Newsletter, Issue no 1, July 2014

[7] Rule 13.09 of the Rules governing the listing of securities on the Stock Exchange of Hong Kong Limited and rule 17.10 of the Rules governing the listing of securities on GEM of The Stock Exchange of Hong Kong Limited

[8] SFC, Guideline on disclosure of inside information, June 2012. These Guidelines provide examples and discuss issues on particular situations in relation to the application and operation of the provisions. They do not have the force of law.

[9] SFC, FAQ on disclosure of inside information, 8 December 2014

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