CONFIDENTIAL
FM HONG KONG
TO PRIORITY FCO
TELNO
1383
OF 06112OZ MAY 91
CONFIDENTIAL
001643 MDLIAN 9183
TMZ OP COPY
Q DIST?
13 MAY
Mr. Stone?
jurc
100
M...
IN
PERSONAL FOR PAUL, HKD.
GOVERNANCE OF THE STOCK EXCHANGE OF HONG KONG (SEHK).
1. YOU MAY BE INTERESTED IN HAVING SOME BACKGROUND INFORMATION TO RECENT REPORTS IN THE MEDIA OF AN ATTEMPT BY CERTAIN MEMBERS OF THE STOCK EXCHANGE COUNCIL TO VALIDATE THE PREFERENTIAL ALLOCATION OF SHARES TO COUNCIL MEMBERS IN RESPECT OF NEW ISSUES. THIS WAS ONE OF THE ABUSES PREVALENT BEFORE THE OCTOBER 1987 CRASH AND WHICH SUBSEQUENTLY GAVE RISE TO CRIMINAL CHARGES AGAINST RONALD LI, FORMER CHAIRMAN OF THE SEHK AND THE OTHER MEMBERS OF THE THEN LISTING COMMITTEE.
2. ON 25 APRIL, IN THE ABSENCE OF THE SEHK'S CHAIRMAN, SIR Q.W. LEE, THE COUNCIL WAS PERSUADED INTO PASSING RESOLUTIONS WHICH PURPORTED TO VALIDATE THE PRACTICE WHICH HAD PERTAINED BEFORE OCTOBER 1987 WHEREBY COUNCIL MEMBERS RECEIVED A PREFERENTIAL ALLOCATION OF SHARES IN RESPECT OF NEW ISSUES AND WHICH REQUIRED THE CALLING OF AN EGM OF SEHK AT WHICH A RESOLUTION WOULD BE PUT RECOMMENDING THAT THE COUNCIL SHOULD CONSIDER RE-INTRODUCING THE PRACTICE FOR FUTURE NEW ISSUES.
3. THE SECURITIES AND FUTURES COMMISSION (SFC) WERE ADVISED OF THE RESOLUTIONS ON 26 APRIL BY ONE OF THE THREE INDEPENDENT MEMBERS OF THE COUNCIL PRESENT AT THE MEETING. ON HIS OWN BEHALF AND THAT OF THE OTHER INDEPENDENT MEMBERS, HE EXPRESSED HIS GREAT CONCERN OVER THE IMPLICATIONS OF THE RESOLUTIONS FOR THE REPUTATION OF THE SEHK AND ASKED THE SFC TO TAKE QUICK ACTION TO OVERTURN THEM. THE SFC AND GOVERNMENT, WHICH WAS ADVISED OF THIS DEVELOPMENT, FULLY SHARED THIS CONCERN. THE SFC PROMPTLY WROTE TO THE SEHK DEMANDING THAT THE RESOLUTIONS BE RESCINDED WITHIN A MATTER OF DAYS. (THIS WAS A NECESSARY FIRST STEP TO THEIR RESORTING TO THEIR POWERS UNDER THE SFC ORDINANCE WHEREBY, AFTER CONSULTATION WITH THE FINANCIAL SECRETARY, THEY CAN REQUIRE SEHK TO TAKE THE NECESSARY ACTION.)
4. SIR Q.W. LEE, WHO AT THIS TIME WAS IN LONDON, FLEW BACK TO
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