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Hong Kong is Asian financial center, with mature capital market. According to the Exchange Newsletter 2007 published by HKEx, Hong Kong securities markets grow dramatically in the last decade. The number of listed companies has increased from 619 in 1997 to 1,196 in 2007, almost double. The market capitalism has expanded from 4,349 billion in 1997 to 15,855 billion in 2007.
Entering into 21st century, the Hong Kong Special Administrative Region (SAR) Government is acutely aware of the importance of maintaining its place amongst the raising competitors, i.e. Singapore and ShangHai, and as the principal fund-raising centre for mainland China. There are two main initiatives took. Firstly, the Securities and Future Commission Ordinance Cap. 24 ("SFO") was enacted in 2002. Secondly, The Hong Kong Stock Exchange ("SEHK") and the Hong Kong Futures Exchange were demutualised and the Hong Kong Exchanges and Clearing Ltd ("HKEx") was created in March 2000 and successfully listed on its main board in June 2000. These reforms ïƒ aim at enhancing new financial infrastructure together. 
Despite the effort on improving the financial market, there is still a regulatory lacuna. This
The chapter is going to introduce the regulations in relation to information disclosure, the existing problem and the suggestions.
Historical Development of Regulatory Institutions
As a British colony in the period from 1842 to 1997, the legislation in Hong Kong is largely influenced by the English common law system and its accounting standards.  British disclosure practice had been followed as a regulatory framework. In the earlier years, the legislations in relation to companies and its governance had followed the English provisions very closely. During the colonial period, Hong Kong courts were adherents of the English precedents and landmark cases. In Hong Kong, the disclosure requirements and contents of public company are expressly stipulated in the Securities and Future Commission Ordinance Cap. 24 ("SFO"), the Companies Ordinance Cap 32("CO"), Main Board and Growth Enterprise Market Listing Rules from Stock Exchange of Hong Kong, Listing Agreements,, and the accounting standards: Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants. 
CO is a legislation which provides a legal framework for the operation of companies incorporated in Hong Kong. Hong Kong tended to follow the earlier English Companies Act 1862 in its enactment. It is the same case for the Companies Ordinance 1932 in Hong Kong and Companies Act 1929 (UK). In fact, the ordinance today is the 1932 ordinance for most part, although it had been amended several times in between. Company Ordinance, altogether with the subsidiary legislations, are administered and enforced by the Companies Registry. The Companies Ordinance covers all the companies incorporated in Hong Kong. On the other hand, the listed companies are falls on the HKEx and regulated by the SFC.
On 1 April 2003, the SFO came into force by the Securities and Futures Commission. The Securities and Futures Commission is a statutory securities regulator, it is expected to offer investor protection by ensuring sufficient information disclosed on the securities and their risks, reduces fraudulent offerings and market manipulative practice. SFO has consolidated 10 ordinances relating to securities markets in Hong Kong into one securities law.  The enactment of SFO was response to the increasing securities transactions and the technological innovation. The SFO aimed at creating a modern legal framework and encourages investor protection, market competition and innovation. The SFO also includes legal sanction on market misconduct and financial crimes.
In the recent years, few new provisions are introduced which to the SFO which particularly regulating the activities of listed companies.  For examples, Part XV Disclosure of Interests was published on April 2003, it prescribes the company director together with their family members (i.e. spouse and children) and substantial shareholders of the companies who is interested in the company securities to give notice under specified circumstance. During the same year, the Securities (Insider Dealing) Ordinance Cap 395 was repealed and replaced by the provisions in SFO.  Insider dealing under the SFO prohibits any person who connected to company and using the relevant information to deal in the listed securities.  In the case of insider dealing, it should be referred to the Insider Dealing Tribunal (IDT), who has authority to disqualify the defaulting director. 
The corporate governance is respect of public companies conducts has been set out in the HKEx's non-statutory Listing Rules. The Listing Rules are designed to maintain and enhance the investors protection and confidence on securities market. 
For a company, the easiest way of raising large scape of capital is to list its securities and for subscriptions. In Hong Kong, companies can only have their shares or securities traded on the stock exchange if the shares are listed on the Stock Exchange of Hong Kong. Securities can be listed either on 'Main Board' or 'Growth Enterprise Market'. Main Board provides capital formation for larger and more established companies which are able to meet the profit and others financial requirements. Growth Enterprise Market was primarily established to gives the growth corporates an avenue to list. It offers the smaller companies with growth potential an opportunity to raise capital, but which may not able to fulfill the listing requirement of the Main Board.
Chapter 7 of the Main Board Listing Rules offers different ways in which securities can be listed.  The principle method of issuing company securities is initial public offering ("IPO"). IPO refers to the sale of a corporation's common shares to the public investors for the first time. IPO is an effective fund rising, but with heavy legal regulations on it. If the companies choose to list their securities in Hong Kong, wherever their place of registration, are bound by the Listing Rules and other securities laws. For any company applies to be listed, the company is requires to publish its information by prospectus. Section 2 of the CO define the prospectus is a "notice, circular, brochure, advertisement, or other document offering any shares in or debentures of a company to the public for subscription or purchase for cash or other consideration"
As for the content of prospectus, the prospectus shall set out the reports and matters as stipulated in Part I and Part II in Third Schedule of the CO. Part III of the Third Schedule provides the interpretations for the operation of Part I and Part II. The prospectus is obligated to provide the company's capital structure, business nature, asset, debt, expert's opinion (if any) and auditor's reports for three financial years, valuation reports on the company's assets. Under Paragraph 3 of Part I Third Schedule, the disclosed informed is required to be understandable for a reasonable investor to form an opinion of the share and the financial condition of the issuer. It shall be met by taking into account the nature of the company and the securities being offered.  In addition to the prescribed information under the Third Schedule, section 38 (1) provides that every prospectus must be issued in English and Chinese versions.
Apart from CO, the content of prospectus is also subject to the Listing Rules. The requirements depends on the listing method of the shares are going to use, and on whether it is the first time issuance or issuing further shares. The guiding principle is to allow the investors to make an informed assessment of the activities of the issuers. 
Once a company is listed on the HKEx, the company must at all times comply with their duty of continuous disclosure. There are various situations that the issuers have to disclose information. For example, they have to inform the public investors when there are notifiable transactions,  connected or related party transactions,  price-sensitive information,  mergers and takeovers and many others ( or should I use " and so on"?) The Listing Rules and the primary legislations do not give exhaustive lists of 'discloseable events'. Instead, regulations in both have provided the principles and criteria of when the issuers should give disclosure. This part will concern on two main types of disclosures of their standards and developments.
In Hong Kong, the listed companies are required to disclose price-sensitive information in a timely manner. (Main Board Listing Rules 13.05 and Growth Enterprise Market Listing Rules 17.10) Price-sensitive information is unpublished information that may potentially affect a company's stock price. The question of what constitutes price-sensitive information is left for the judgment on the part of the companies. But the Main Board Listing Rules gives guidelines of what is price-sensitive information, it says the issuers have disclose the information "as soon as is reasonably practicable if: (a) information necessary to enable the public to appraise the position the group; or (b) information necessary to avoid the establishment of a false market in its securities; or (c) information which might be reasonably expected materially to affect the market activity in and the price of its securities." (Main Board Listing Rules 13.09 (1)) It is important to stress that in determining the information, (a) to (c) criteria should be examined independently rather than conjunctively.  Also, the obligated is supplemented by the obligation under Note 11 of the Listing Rules.
In business operation, there are many events which may affect the company's stock price. For instance, entering into an important contract/joint venture; a large foreign exchange gain; mergers and acquisitions; upheaval in the industries or regions which causes large influences on company's operations or transactions; resignation or appointment of chief executive. There is no definitive list can be given. It is therefore vital for the issuers to carefully assesse the possible impact of the activities on company stock price. Paragraph 2 of the Listing Agreement and Growth Enterprise Market Listing Rules 17.10 have imposed an obligation on issuer " to keep the Exchange, their shareholders and other holders of their listed securities informed, as soon as reasonably practicable, of any price-sensitive information relating to the issuer's group." This is often called the 'general disclosure obligation' 
The Main Board listed corporates are obligated to issue annual report under the Main Board Listing Rules 13.46. The issuer can choose to issue either "(1) its annual report including its annual accounts and, where the issuer prepares group accounts within the meaning of section 124(1) of the Companies Ordinance, the group accounts, together with a copy of the auditors' report thereon." Or " (2) the company's summary financial report not less than 21 days before the date of the issuer's annual general meeting and in any event not more than four months after the end of the financial year to which they relate."  The Rules 13.47 further stipulates the annual report must comply with the provisions set out in the Rules Appendix 16 - minimum financial information that the issuer should include in the report. As for the summery financial report, it should be prepared according to the Companies (Summary Financial Reports of Listed Companies) Regulation. Regarding the Growth Enterprise Market, the issuer shall issue annual report includes balance sheet, income statement, business review, particulars of any purchase, sale or redemption by the listed issuer and other information in relation to its financial status. (Growth Enterprise Market Listing Rules 18.49 and 18.50)
Apart from annual report, the issuers from the Main Board also have to publish interim report in the first six months of each financial year. The interim report is required to comply with Rules Appendix 16 and Companies (Summary Financial Reports of Listed Companies) Regulation. Similarly, the listed companies of Growth Enterprise Market have to issue interim report as well. The interim report shall be issued in the first six months of each financial year and published on the Growth Enterprise Market website. The table below gives a comparison of the disclosure standard of Hong Kong and other jurisdictions.
Table 1: Comparison of Periodic Disclosure of Hong Kong and other Countries.
( Hong Kong Stock Exchange)
Singapore ( Singapore Stock Exchange)
United Kingdom (London Stock Exchange)
Australia (Australian Securities Exchange)
Growth Enterprise Market
(4 months) ( audited)
Main Board Listing Rules 13.46
Growth Enterprise Market Listing Rules 18.49
45 days (unaudited)
Singapore Listing Rules 705
120 days (audited)
Disclosure and Transparency Rule 4.13
(audited or reviewed)
Australian Securities Exchange Rule 4.3.1
(3 months) (unaudited)
Main Board Listing Rules 13.48
45 days (unaudited)
Growth Enterprise Market Listing Rules 18.78
45 days (unaudited)
Singapore Listing Rules 705
60 days (audited)
Disclosure and Transparency Rule 4.2.2.
(audited or reviewed)
Australian Securities Exchange Rule 4.1.1
Growth Enterprise Market Listing Rules 18.79
45 days (unaudited)
Singapore Listing Rules 705 *only for issuer with market capitalization exceeding S$75 million
Two interim management statement during six month period between the publication of annual and interim results
Disclosure and Transparency Rule 4.3.
Australian Securities Exchange Rule 5.3
* Mining exploration entity only
Source: Consultation Pater on Periodic Financial Reporting (HKEx August 2007)
Lack of Quarterly Report for the Main Board Listed Companies
As can be seen in the above table, Hong Kong is the only market without mandatory quarterly report requirement for the Main Board issuers among the various countries. Under the current law, the quarterly reporting is on a voluntary basis. The Code on Corporate Governance Practices recommends good corporate governance under the Main Board Listing Rules.  It recommends the listed companies should announce and publish quarter report not late than 45 days after the end of the relevant quarter.  Without compulsory quarterly reporting for the Main Board issuers is considered as a serious statutory shortcoming. To increase transparency in corporate governance and to be in line with other international financial market, the HKEx has published Consultation Paper on Periodic Financial Reporting ("consultation paper") in August 2007 which proposed to mandate to quarter reporting.  However, the consultation conclusion issued in July 2008 does not include this proposal for implementation.  In fact, the mandatory quarterly reporting is neither difficult nor complex as has been raised by the government in the consultation paper 2007. The Hong Kong government should reconsider its implementation, compulsory quarterly reporting enables the investors to monitor the performance of the listed companies and increase the market transparency, thereby offering better investor protection.
During the government consultation in 2007 to 2008, many listing companies were strongly against the recommendation of mandatory quarterly reporting. China Light Power in its response letter said that mandatory quarterly report is unnecessary because some issuers do issue quarter reports. The companies should be given choices to issue or not.  Chartered Secretaries also object the quarterly reporting requirement, because "quarterly reporting creates a short term view which is not relevant to the investors who are concerned about the medium to long term performance and sustained shareholders value of issuers many of the companies may feel pressured and obliged to come up with something new to say about their business plan and strategies."  Also, many company did not support the quarterly reporting is because of the costs. The new requirement will impose additional costs to their operations.
With respect, it is believed the above argument is misconceived. First, there are some public companies voluntarily issue quarter reports, including the China Light Power itself, but the numbers are far very few in general. Secondly, quarterly reporting will not lead to short term focus; instead it provides the listed companies with an opportunity to further explain their long-term strategy and plan. Finally, quarterly reporting may increase the costs for the companies, but it is anticipated that the potential benefits of investor protection outweigh the costs. Although there is a worldwide trend to form compulsory quarterly report; similar practices can be seen in US, UK and European capital markets (effective from 2007). Hong Kong's proposal of adoption is not of the pressurization of the situation of other countries. In fact, with the increasing dual 'H' and 'A' shares listed in Hong Kong and the cross boarder capital inflows in the recent years, it is believed this is appreciate time to introduce compulsory quarterly reporting for the Main Board listing companies. After weighing the pros and cons of quarterly reporting, the government should introduce the mandatory quarterly reporting with care.
Legal Sanctions Against Bad Disclosure
If the content of prospectus or statement i.e. annual report or interim report includes untrue, false, or misleading information, the issuer may subject to fine or penalty. The legislations impose different legal sanctions on breaches. Those who rely on the prospectus and suffer loss by that statement may have remedies against the wrongdoner under contract, tort or statute.  This part is going to examine the punishment in the context of prospectus and continuous disclosure.
Regarding to the prospectus, the issuer i.e. company directors or expert could be subject to civil or/and criminal liability for the issuance or and content of the misrepresentation in the prospectus. Prior to the misrepresentation, the persons who suffered loss and want to claim damages must first to prove: it is legitimate reliance on misstatement from issuer and the investor has suffered loss from such reliance, provided that the misstatement is a statement of fact, not opinion.
CO section 40(1) provides a list of persons who are liable for the untrue statement in prospectus.  Even an expert is liable if he has consented to the part of untrue statement in prospectus. (Section 38C & 40 (1A)) Section 108 of the SFO also imposes civil liability on any person who "makes a fraudulent, reckless or negligent misrepresentation which has induced another to enter into or offer to enter into an agreement to subscribe for securities." But SFO Section 108 does not apply in any case to which CO section 40 applies. (SFO section 108(4))
Through the Securities and Futures Ordinance, it is possible for the investors to make claims for market misconduct and to seek redress from the Market Misconduct Tribunal. By section 277(1) of the SFO, when a person discloses false or misleading information as to a material fact that is likely to induce another to subscribe for securities, where the first mentioned person knows or is reckless or negligent as to whether the information is false or misleading. This conduct in section 277 constitutes market misconduct given in section 245, which can lead to civil liability under section 281 to compensate persons who have suffered loss as a result of the conduct.
It can be seen that the key criteria under the Company Ordinance and Securities and Futures Ordinance is 'misstatement'. Generally, there are three types of misstatements; (or ','?) the injured investors could sue for damages under the misstatements. The first type is 'innocent misstatements'. Innocent misstatement means "a untrue statement which the maker honestly and reasonably believe to be true."  It is important to stress that the SFO section 108 and 277 would not apply to innocent misstatements. But the investors could choose to sue under the general law of misstatements, there would be a right to rescind a contract for innocent misstatement, and the court may also award damages in lieu of rescission under Misrepresentation Ordinance section 3(2).  The second type is 'negligent misstatement'. It was first seen in the case of Hedley Byrne and Co Ltd v Heller and Partners,  negligent misstatement was defined a untrue statement carelessly drafted by the maker, although honest misstatement, cause an action in tort if the investor has suffered financial loss by relying on this statement. Although the law implies a duty of care from the statement marker ( i.e. company directors) to the investors who subscribed for shares in reliance on the statement, the statement maker does not owe a duty to shareholder or anyone else who relied on the prospectus of the purpose of purchasing through the stock market because there was an insufficiently proximate relationship between them (AI-Nakib Investments (Jersey) Ltd v Longcroft  ) The last one is 'fraudulent misstatements'. To successfully establish fraudulent misstatement, one must show a false representation in the prospectus has been made knowingly / without belief in its truth / recklessly whether it was true or false: Derry v Peek.  Interestingly, there is reversal of onus of proof that it is for the defendant "to prove that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true" (Misrepresentation Ordinance section (3)(1)).
Apart from civil liability, misrepresentations in prospectus can give rise to criminal liability under the CO, SFO and pursuant to other criminal offences. Under CO section 40A, "persons who authorize the issue of the prospectus are subject to criminal liability (imprisonment or fine) for any untrue statement contained in the prospectus unless they prove that: (1) the statement was immaterial; or (2) they had reasonable grounds to believe and did believe up to the time of issue of the prospectus that the statement was true."
SFO section 107 imposes criminal liability on a person who makes a fraudulent or reckless misrepresentation for the purpose of inducing a person to enter into an agreement or acquisition or subscription for securities. But when a company is liable under section 107, the officers of the company might also be liable under principles of accessorial liability set out in section 309. Under section 309, if there is any offence/breach by a company is proved to have been "aided or abetted, counseled or procured by, or committed with the consent of, is attributable to the recklessness of, an officer of the company, that officer will be guilty of the offence and liable to punishment."
The price of securities is a reflection of the information about their value. For this reason, false or misleading information about securities may affect their price and investor's decision. With the advancement of information technology, news and information are disseminated quickly and broadly. The untrue information could highly and quickly harm a great number of investors. Therefore, section 298 of this ordinance provides measure against publishing false or misleading information. Section 298 criminalizes the disclosure of false and misleading information about the securities that is likely to induce investment decisions or have material price effect.  It has to notes that, section 298 is a criminal provision equivalent to the civil liability provision in section 277(1), however section 298 does not cover negligent misstatements.
Except for the above legislations specifically dealing with untrue misstatement in prospectuses, other general criminal provisions relating to fraud could also be applicable. For example, section 21 of Theft Ordinance (Cap 210) provides that if a body corporate publishes a false or misleading written statement with the intention to deceive company member or creditor, he shall be liable for imprisonment. 
Difficulties to Sue under the Litigation
In practice, sometimes it is considered difficulty for the aggravated investors to successfully sue for damages under the litigation. For example, the injured party can sue for disseminating false and misleading information under Section 298 SFO (criminal liability). To prove false and misleading information published by the issuers under section 298, it must apply the criminal standard. That means the legal burden rests on the prosecutor, each element constituted of guilt have be proved beyond reasonable doubt. The defendant, on the other hand, is presumed to be innocent until he is proved guilty of the offence.  When the defendant is called to give defense, he only have to establish his defense on the civil standard of proof namely on a balance of probability.
Section 298 (1) gives a rise to the causal link between misleading information and price fluctuation, the legislation provides that: "to maintain, increase, reduce or stabilize the price of securities, or the price for dealings in futures contracts, in Hong Kong, if (i) the information is false or misleading as to a material fact, or is false or misleading through the omission of a material fact; and (ii) the person knows that, or is reckless as to whether, the information is false or misleading as to a material fact, or is false or misleading through the omission of a material fact." The legislative provision uses the conjunctive phrases 'if' and 'and'. As commented by Profession Low from the Chinese University of Hong Kong, this provision "mandates the prosecution to show a direct causal link between the fluctuations in the price of the securities to the making of a false or misleading statement with either an appreciation or ignorance of its consequences."  Given the requisite standard and proof is high, so the prosecution may not choose to sue under the section 298.
Another problem is, even the SFC starts the litigation against the wrongdoer, but its prosecution power is only limited to the Magistrate Court. Magistrate Court imposes relatively low penalties, with maximum penalty of HK$ 10 million and/or ten years imprisonment.  It will appear that the sanctions available may not be significant compare with the investment loss from massive ( or a great numbers of ?) investors.
Usually market misconduct falls in the scope of civil liability. Instead of suing the wrongdoers by the SFC, the investors who have been adversely affected by the company can sue for civil liability against the its misconduct. The only mechanism of multi-party litigation in Hong Kong is the representative proceedings under the Rules of the High Court (Order 15, rule 12). However, such proceeding had been criticized as restrictive and insufficient.  Many jurisdictions have adopted both the representative proceedings and class action.
The representative proceedings applies when " where numerous persons have the same interest in any proceedings â€¦ the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them."  On the other hand, Class actions allows a plaintiff' representing others to sue the same defendant in respect of the same alleged wrong. In Australia, it allows the representative proceedings and class action under Part IVA Federal Court of Australia Act 1976 and Part 4A (Group Proceeding) of the Supreme Court Act 1986.  For the U.S., the regime of class action has started since 1966, and now is governed under Rule 23 of the US Federal Rules of Civil Procedure.  The representative proceeding is regulated under the Model Business Corporation Act. The multi-party litigation usually is invoked in corporate scandal or claimed for environment damage.
In practice, the multi-party litigation is not common in Hong Kong because of the potential risks that it may cause. There is a ( or without 'a'?) concern the compensation culture and unnecessary litigation will be encouraged under the multi-party litigation. It may foster lots of proceedings which lack merit. It will increase social costs for the corporates, because they may have to take additional insurance to cover the possibility of class lawsuit. Another problem is, under Hong Kong's legal system, which is similar to that of British common law, if the plaintiff loses, he or she has to pay the defendant's legal fees, and legal fees are high in Hong Kong. Further, if all of the assets of the implicated firm had already been expropriated, merely winning a case would not help the victim gain monetary compensation. (Plz help me to rephrase the colored paragraph)
Given the potential risks under the multi-party litigation, there is a better alternative to settle the claims from massive civil claims from aggravated parties -- mediation and arbitration.  The settlement of mini-bound saga gives a good example of this. Following the collapse of Lehman Brothers investment bank in 2008, the securities guaranteed or issued by Lehman Brothers had dropped sharply in value. Based on the publicly available facts, it adversely affected more than 44,000 Hong Kong investors with of HK$ 15.8 billion in the aggregate.  The aggrieved Lehman Brothers investors are now seeking compensation for their losses. Many of them allege they were misled by the aggressive sales tactics from 19 banks in Hong Kong. They were misled to believe the Lehman Brothers financial instruments were absolute safe investment, but in fact it was high risk securities. Some investors claims that they were persuaded to purchase on a kind of securities which was described as 'minibonds'. (the name refer to the bonds implying a relatively safe form of investment)
Investors have filed almost 5,000 complaints with the Consumer Council and some 12,000 complaints with the Hong Kong Monetary Authority of their case. After months of investigation, instead of multi-party proceedings, the bank agreed to settle the case by arbitration. More than 10 related cases were settled in Hong Kong International Arbitration Centre.  The selling banks also agreed to offer 'buy back' schemed proposed by the Hong Kong government. The selling banks agreed to buy back Lehman Brothers securities at 'market price' under this scheme. Hong Kong Monetary Authority announced it would pay half fee of the arbitration and meditation incurred in the Lehman Brothers disputes.
Mediation is usually referred as alternative dispute resolution ("ADR"). Mediation is voluntary procedure in which a trained and impartial third party (called a mediator) helps the parties settle their dispute. The mediator assists the parties to discuss the issues in dispute, identify their real needs and interests, explore possible settlement options and reach a settlement agreement. If the mediation results in a settlement, an agreement will be drawn up containing the agreed terms and, once signed by the parties, will be legally binding.( (Plz help me to rephrase the colored paragraph)
Mediation has long been considered a better alternative to litigation. It can promote cost-effective dispute resolution of multi-party action and avoid the high costs and delays of litigation processes.  Most importantly, to settle class action by medication or arbitration is ling with the underlying objective of Civil Justice Reform ('CJR'). Civil procedure in Hong Kong has been criticized as too expensive, too adversarial and too slow to reach resolution.  The CJR is adopted in 2008 aims at increasing the cost-effective of procedure and practice and facilitating the settlement of disputes.