Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, March 29, 2007

From US, to EU, to Hong Kong, to retail sales of hedge funds, and to empty voting.

Back from holiday, to find lots going on.

In the EU, the Commission (finally!) published the rules on the Transparency Directive. In mid March – nearly 2 months after the live date of January 20th - the Commission posted the final rules on its website. Extracting sections of relevance to the means of meeting disclosure:

" The mere availability of information, which means that investors must actively seek it out, is therefore not sufficient for the purposes of that Directive. Accordingly, dissemination should involve the active distribution of information from the issuers to the media, with a view to reaching investors. "

"Additionally, by way of minimum standards, regulated information should be disseminated in a way that ensures the widest possible public access, and where possible reaching the public simultaneously inside and outside the issuer’s home Member State."
And the new rules also require competition in the provision of services to issuers.

Pretty clear then. Unfortunately, in Hong Kong the Exchange has taken a retrograde step. In ending – from June 2007 - the obligation to publish an advertisement, it has obliged companies instead to use an exchange-mandated system for delivery of news to the exchange, who then publish it. Just like the bad old days of pre-TOD monopolies.

Meanwhile over in the US, the SEC adopted its new rules (see posting on January 11th) for deregistration by foreign companies as adopted by the Commission March 21, 2007. By eliminating conditions that had been considered a barrier to entry, the amended rules will encourage participation in U.S. markets and increase investor choice.

Also in the US, NIRI held a webcast on empty voting, the phenomenon where long investors can (sometimes unknowingly) lend their securities to hedge funds and others to vote. This issue will run and run in my view, and we may well see action from the SEC. To access the webcast and here views from Professor Black of the University of Texas (and author of a key report on the matter), the CIO of Lord Abbett and yours truly, please visit

And finally the Financial Services Authority has proposed rules allowing retail investment in funds of hedge funds and other alternative investments sold by firms authorised in the UK.

Under the rules, the new vehicles will be able to invest in any offshore funds, allowing the creation of funds of private equity or property funds as well as hedge funds. Managers will be required to carry out proper due diligence on their investments and be sure there are "robust" valuation practices.

And there’s the rub. Valuation is one of the key concerns of regulators and investors because of the potential conflict of interest when managers both calculate the value of assets and are paid according to increases in value. However, hedge funds in which the new vehicles invest will not be required to have independent valuations, which will cause some concerns.

Very fast round up of what’s going on in corporate transparency this week.


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