Concerned about corporate governance in Hong Kong
20 Apr 2009
Starting with the Accumulator products, to the Lehman mini-bonds, retail investor interests have been damaged as a result of lax regulatory oversight. Yesterday (April 19), there was a protest of approximately 3,000 retail investors who became Lehman victims. They sought to bring attention to their plight and to criticize the inadequate state of financial product supervision by the Chief Executive, who, in their eyes, did nothing to help them seek compensation for their losses. The victims asked the Chief Executive to step down, reflecting investors’ demand for more stringent regulations. On the other hand, banks did not perform enough due diligence before introduction of the products, another trigger event of the Lehman Mini bond incident.
In fact, in addition to small investors, even listed companies recorded extraordinary losses due to accumulators with CITIC Pacific (267)
being one of the prime examples. CITIC Pacific recorded a huge loss of $15.5 billion because of speculation on a Forex accumulator. As evidence of the need for greater oversight, the amount of the loss far exceeded the total amount of the foreign currency risk the company needed to hedge. This is clearly the result of a lack of internal controls within the company.
Apart from CITIC Pacific, although the privatization of PCCW (8)
did not violate the law, the company's actions were clearly in a grey area of the law. The company damaged the interests of minority shareholders in order to achieve its goal, and it was criticize by many investors. The PCCW privatization trial judge also compared the practice that PCCW used to force out minority shareholders to practices of common bandits.
The above examples illustrate the importance of management and control, and also the need for improvement by regulators to keep Hong Kong's financial markets equitable to all investors.
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