Apollo Investment Management 

Opacity, the Asian way?  Stock exchange responsibilities on disclosure

I have been meaning to write about disclosure, and my former colleague David Webb has just kicked off this discussion so lucidly that my own additional comments can be much shorter. Let me start with key extracts of David's article:

"The Stock Exchange of Hong Kong, soon to be part of a profit-making listed entity, has proposed that listed companies be required to publish their corporate documents on their own web sites. We see this as a blatant attempt to relinquish responsibility for the centralised publication and storage of information, a responsibility that the Exchange has yet to fulfill... We are all in favour of listed companies publishing web sites and improving disclosure, and this practice should be encouraged, but what we need most is a central information warehouse for the formal reports, announcements and circulars which are produced under the listing rules."

"For an example of how an exchange should publish information, look no further than the home page of the Stock Exchange of Singapore (SES). There you will find a centralised electronic archive of prospectuses, annual and interim reports, shareholder circulars and announcements, updated in real time. It's not perfect, but it is streets ahead of Hong Kong's system."

This has always been a problem in Hong Kong. The storage requirement to maintain anything remotely approaching a comprehensive library strains even the biggest investment banks, and at Hong Kong office rents the direct costs are no joke. In any case the duplication of effort is absurd - and the contempt it implies for private investors who cannot afford to spend tens (or even hundreds) of thousands of US dollars a year collecting basic information is most disturbing.

Back in 1993, I tried to persuade the Stock Exchange of Hong Kong to cooperate in releasing a copy of all official documents and announcements for electronic dissemination. The system was backed by a large number of leading broking firms, but the Exchange refused to cooperate. We considered setting up a service soliciting the reports directly from companies - but as David points out, the problem is with those companies economical with voluntary disclosure, often those where access to  information is most required.

Even the release of corporate announcements was at that stage a joke. Large companies would typically release their results at a press conference after the market close, say at 5pm each day. The only way of obtaining the announcement was to send an analyst or messenger - or wait for cooperative finance directors to fax them, but on many an evening I saw analysts waiting for a fax to arrive at an hour when they should have been already tucking into dinner, only then to start on their spreadsheets and questions. This of course allowed the (active) London market a good head start on local investors, who would see the announcements only the next morning.

Six years ago, our solution was a subscription service for professionals. Now, with Internet technology, the solution is so obvious, so easy, and so inexpensive, that there is no excuse for the exchanges not to make available to all the corporate information which is supposed to be public. As David points out, they have a duty to market participants, and a duty to promote the efficient allocation of capital.

David's full article is well worth reading, and may be found at http://webb-site.com/articles/pubduty.htm

While the Stock Exchange of Hong Kong has always shirked its dissemination responsibilities, the Stock Exchange of Thailand has recently taken a giant step backwards. Having set up a website, which despite many deficiencies made corporate publications available for the first time to the individual investor, it has now imposed hefty subscription charges which make even financial professionals pall - particularly given the non-professionalism of the sales and marketing effort, which does not inspire confidence that value will be delivered. (When I last looked, payments had to be made with baht bank drafts, an additional disincentive to those of us overseas.) Even local brokers are now required to pay for corporate announcements which they previously received free, and consider the charges very high. The brokers we use subscribe, of course - but I bet that many of the smaller houses without research pretensions do not.

This is infuriating to Thai companies, who have to prepare some of the most detailed quarterly reports in Asia, often 20-30 pages long. They deliver these to the Stock Exchange, where they disappear into a black hole, but for the one useful line "net profits" which may be seen by subscribers to Bloomberg.

This is doubtless all part of a misguided effort to boost Stock Exchange revenue which has collapsed with the stockmarket, but I cannot believe that the revenue generated is high - both the prices and the effort involved in subscribing are too great. The cost to the Thai economy is, I suspect, substantial.

Malaysia is little better, and we depend on the companies themselves to make information available to Bloomberg, Reuters and individual investors. The Securities Commission has just moved into an enormous new building, commissioned during the boom. Maybe this disruption is distracting it from improving disclosure.

As David points out, relying on companies to disseminate their own documents or publish on their own websites is "a recipe for chaos. Each company may use a different format, very few of the documents would be machine readable, and there will always be some sites out of action, particularly if the listed company in question is not paying its bills due to financial difficulty." I would add that many small companies do not have the technical capability to publish efficiently in electronic format. This goes for some large companies, too. I have received some hopelessly unformatted and defective spreadsheets, quite unsuitable for transmission outside their original environment - and probably dangerous within it. (Who can blame them, when the Securities Commission in Malaysia acknowledges factual mistakes on its own website?  Their list of licence requirements alarmed one fund manager recently. A telephone check revealed that the webpage was known to be incorrect, but that noone knew how to change it!)

David's prescription is exactly right, for all stock markets:  "we need a centralised on-line database, sponsored by the [stock exchange], which should include:

"The reports and circulars should be made available in a standardised format such as PDF or HTML/XML."

The long-term importance of the efficient allocation of capital should make this low-cost service a high priority for the financial authorities and regulators in any country. For those countries receiving international restructuring aid, such easily-achieved benefits surely merit conditionality. For dispensers of aid funds, the bang for the buck should be highly attractive.

Claire Barnes, 16 September 1999

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