/ Hong Kong

Who is most negligent in disclosing their stock holdings in Hong Kong?

Like all modern stock exchanges, directors/CEOs and substantial shareholders in companies listed on Hong Kong's monopoly Stock Exchange must disclose their shareholdings and changes therein in a timely manner. The operating law in this regard since 1st April 2003 is Part XV of the Securities and Futures Ordinance (SFO). All the gory details can be found here in PDF format.

In this post we will try to find the most egregious filers of these disclosures, who instead of giving notice of the relevant shareholding events within the required 3 business days "of the day you know of the relevant event" (or 10 days if the event is the first one they must notify), can take years to supply the necessary information.

First off, we can see the distribution of delay between (claimed) awareness of a disclosable event and the disclosure itself:

Bearing in mind that despite of the over almost 650,000 unamended disclosures in our database, almost 462,000 don't give a date of when the discloser became aware of the relevant event, the graph above still shows that while most filings are supposedly on time, there are still many self-admitted late filings, with the most-delayed being 5,052 days after being aware of the relevant event. How is this possible, when at worst the delay should be 10 days?

This is the disclosure in question. It was filed in June 2018 for an event in May 2003 (with awareness arising in June 2003), to make a delay of 15 years. It turns out to be a complicated amendment of a disclosure from June 2003 for the same event... I'm not sure if it's a genuine amendment, i.e. a correction of the record, or a new incident. Being charitable, perhaps these extreme delays are due to these amendments?

Disregarding disclosures that are amendments of earlier disclosures, we find that there remain 6,295 disclosures where the filing date is more than 10 days after the self-admitted date of awareness of the need to file.

The latest disclosure appears to be this one, with a delay of 15 years. But a closer look reveals that the event itself was in February 2016, while the date of awareness was in April 2001, which would only be possible with the aid of a time machine. So this is almost certainly a typo (doesn't anyone validate their data?), so being charitable again, we ignore this disclosure too, and restrict our search to disclosures where the event date is before the date of awareness, with the arrow of time pointing in the traditional direction.

And at last we find the worst offender (at least amongst those shareholders who are honest about when they became aware of the disclosable event): On 5th May 2018, Sun Life Financial Inc., a Canadian life insurance company, sold enough shares in ZTE Corporation (HKEX stock code 763) on 13th January 2006 (which it only became aware of 4 days later) to go below the 5% threshold of being a substantial shareholder, which is a disclosable event. This makes for a delay of 4,491 days. But the record actually goes to a subsidiary of Sun Life Financial Inc., Sun Life of Canada (U.S.) Financial Services Holdings, Inc., who on 5th May 2018 filed a disclosure too, but this time for becoming a substantial shareholder in ZTE on 27th May 2005 (with awareness again coming 4 days later), for a delay of 4,722 days. Naughty Sun Life! It turns out there are 121 disclosures by Sun Life Financial Inc. or Sun Life of Canada (U.S.) Financial Services Holdings, Inc. that were over 150 days late.

Honorary mentions go to the slowest director, Ms. Wong, Helen Shuk Ying 黃淑英, who took until September 2015 to admit she bought 30,000 shares in Moiselle International Holdings Ltd., stock code 130, in November 2004, two months after becoming an INED (a position she still holds). This is a delay of 3,953 days. However, this could be a mistake too, as the form ID of DA20041210000178 indicates this was submitted in December 2004, so perhaps it was accidentally changed in the system. (Doesn't anyone ensure the data is immutable?)

Using the Form ID as representing the canonical date of filing, the tardiest directors are those of Kingdee International Software Group Co. Ltd. (stock code 268) who were aware of their disclosable interests on 9th May 2008, one day after the relevant event (being given stock options, it seems), but only declared on 7th January 2010, 608 days later. The four disclosures are here.

This analysis doesn't include disclosures that come a long time after the event but a short time after supposed awareness, because strictly speaking the rules state that the clock starts after awareness. But to see how this rule might be abused, consider another disclosure from Kingdee. On this occasion the relevant event occurred on 31st March 2007, and the disclosure was made on 2nd March 2008, almost 2 years later, or exactly 702 days later. However, the director, Ho, Ching Hua 何鏗華, claimed in the form that he only became aware of this event on 28th February 2009, 2 days before the filing, which is within the guidelines. However, this was 700 days after the event... Why did it take so long to become aware of the event?

The SFC is the regulator in Hong Kong that is responsible for ensuring these disclosures are made in time. Unfortunately, since 2009, the SFC no longer publicises prosecutions for failure to disclose interests in listed securities. So we don't know what happened to Sun Life or the Kingdee directors, or whether my analysis was mistaken and they did nothing wrong. Hopefully letting the data breathe will bring in disinfecting some sunlight (along with some unfortunate mixed metaphors).

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