Two recent high-profile deals are reigniting concerns over potential insider trading in Hong Kong’s $5.1 trillion stock market, with investors calling for tighter enforcement by the regulators.
(Bloomberg) — Two recent high-profile deals are reigniting concerns over potential insider trading in Hong Kong’s $5.1 trillion stock market, with investors calling for tighter enforcement by the regulators.
Shares of IMAX China Holdings Inc. surged the most in more than two years on Tuesday and were subsequently halted, two days before a take-private deal was announced. NWS Holdings Ltd. shares posted their biggest gain in a year on June 23, before news of a buyout offer emerged four days later.
The abnormally large swings prior to official announcements raised alarm bells on trading desks about the potential of nefarious buying on advanced knowledge of the deals. While Hong Kong’s market is no stranger to mysterious stock moves, past episodes were mostly limited to small-cap firms.
“Disappointingly, this situation often occurs in Hong Kong’s stock market,” said Mike Leung, investment manager at Hong Kong-based brokerage Wocom Securities Ltd. “Clearly, the level of confidentiality has been insufficient, and there are suspicions of insider trading. There have been few successful enforcement examples in the past, which may worsen the situation.”
Hong Kong Exchanges & Clearing Ltd. representatives declined to comment. Representatives at the Securities and Futures Commission, IMAX China and NWS didn’t respond to requests for comment.
An analysis from H/Advisors showed Asia Pacific was the most porous region last year for leaked deals, with more than half the transactions seeping out prior to an official announcement. Western Europe was ranked next at around 48%, followed by the US at 28%.
Trading data for both IMAX China and NWS “looks suspicious” and may likely draw the attention of the city’s securities watchdog, said Brock Silvers, chief investment officer at private equity firm Kaiyuan Capital. IMAX China and NWS both had the highest trading volumes in months before their deals were announced.
The SFC in March launched a regime which requires investors to have their personal identification details registered with the stock exchange, as it seeks to tighten oversight on trading activities and reduce market misconduct.
That may help regulators “investigate related illegal activities promptly and effectively,” said Wocom Securities’ Leung, adding that more successful prosecutions will enhance deterrence of insider trading.
–With assistance from Kiuyan Wong.
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