2012-04-20

Hong Kong moves ahead of New York in investor protection in IPOs

Hong Kong moves closer to bank liability for IPOs
Hong Kong's financial market watchdog will launch a public consultation in the next couple of weeks that seeks to toughen rules for banks sponsoring initial public offerings, including holding them liable for faulty deal documents.

The move is likely to draw strong opposition from foreign investment banks worried about increased risk in a market that has been the world's biggest for listings in two of the past three years, but has also seen a number of scandals.

According to sources with direct knowledge of the matter, the Securities and Futures Commission (SFC) is set to issue a two-part consultation paper, with one section proposing to toughen the code of conduct for IPO sponsors and the second making them liable for the contents of listing prospectuses.

"Everyone will be taking a step back and revisiting whether it makes economic sense to even pursue those deals," said Bonnie Chan, a partner at law firm Davis Polk & Wardwell and former head of Hong Kong Exchange's IPO transactions department. She had not seen the consultation paper.
Comments later in the article discuss how this could make Hong Kong too expensive to list in, but it also means listing in Hong Kong will be more valuable and likely confer higher price-to-earnings multiples. The new rules are a response to egregious fraud cases, where fraud was detected only a few months after a firm IPO'd.

Bankers could be jailed over dodgy listings
Bankers and brokers may be jailed if they fail to ensure the accuracy of listing prospectuses produced by companies they are sponsoring to join the stock market.

Allocating criminal liability for such misdeeds is part of the Securities and Futures Commission's plan to improve market quality in light of recent scandals that have tarnished the image of the local bourse.

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