Hong Kong settles penny stock inquiry


Many stocks sold off more than 20 percent on July 26, with one company plummeting 88 percent in a day

By Alex Frew McMillan

HONG KONG, China -- The Hong Kong government has ended an inquiry into the "penny stock" fiasco in July without finding "major shortcomings" and without a call for resignations.

The two-member panel released a 181-page report, complete with 97 pages of appendixes, on Tuesday afternoon.

In delivering the report, Chief Executive Tung Chee-hwa supported his Financial Services and Treasury Secretary Frederick Ma, who had come under pressure over his handling of the event.

Tung noted that Ma had only recently accepted his post when the incident happened. Ma has said he hopes to perform his job better in the future.

The report did, however, find that Ma had "clearly misinformed" Financial Secretary Anthony Leung.

Selloff on July 26

The report stems from an incident that saw investors dump low-valued or "penny" stocks in more than 200 companies on July 26.

The selloff came after the Hong Kong Exchanges & Clearing Ltd., which runs the stock exchange, produced a consultation paper that suggested ways of handling delistings of poorly performing stocks.

The exchange subsequently backed off its suggestion that shares should be delisted if they fall below 50 Hong Kong cents for 30 days.

That proposal caused 66 stocks to drop more than 20 percent, with one plummeting 88 percent.

The report on the event recommended that the government review the three-tier structure monitoring securities trading. It also suggested fine-tuning the way in which proposals are tested and adopted.

Defending accountability

The government, the Securities and Futures Commission and the Hong Kong Exchanges and Clearing Ltd. oversee Hong Kong's stock markets together.

Tung defended his recently introduced ministerial accountability system. Besides calls for Ma and Leung to accept responsibility, Hong Kong Exchanges CEO Kwong Ki-chi and Securities and Futures Commission Chairman Andrew Sheng had come under fire.

"There is no direct correlation between the introduction of the accountability system and the incident," Tung said.

He said that system is designed to make government ministers more accountable to the public.