Enig­matic trad­ing

Northwest Arkansas Democrat-Gazette - - ONLINE EXTRA -

The sud­den and enig­matic crash last month of Hong Kong small cap shares has drawn re­newed at­ten­tion to the chal­lenges of reg­u­lat­ing main­land Chi­nese-based com­pa­nies.

In late June, dozens of penny stocks on the Growth En­ter­prise Mar­ket plunged in the space of an hour, with some, like plas­tic um­brella maker Jicheng Hold­ings, tum­bling 90 per­cent or more.

There’s been no clear ex­pla­na­tion, though in a re­port is­sued in June lo­cal in­vestor ac­tivist David Webb de­tailed their links in a com­plex web of cross share­hold­ings that he dubbed the Enigma Net­work. Webb said the links served to ar­ti­fi­cially in­flate the small caps’ share prices.

An­other com­mon theme run­ning through this and other Hong Kong stock mar­ket scan­dals in­volv­ing com­pa­nies listed on the main board is that many are based in main­land China.

Hong Kong’s reg­u­la­tors face a grow­ing chal­lenge in polic­ing listed com­pa­nies as Chi­nese com­pa­nies take an in­creas­ingly out­sized role in the ter­ri­tory’s fi­nan­cial mar­kets. There are lim­its to what they can do when such com­pa­nies’ se­nior ex­ec­u­tives are be­yond their reach on the main­land, which is a sep­a­rate ju­ris­dic­tion.

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