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H.K. penny-stock fiasco probe finds no official at fault.

HONG KONG, Sept. 10 Kyodo

A Hong Kong government-appointed panel of inquiry into a recent fiasco over a controversial proposal to delist low-priced companies from the stock exchange found Tuesday that no officials or market regulators should be faulted even though the incident resulted in heavy losses in the so-called penny stocks.

The two-member panel stressed that the ongoing reforms to improve the quality of the territory's securities market should not be derailed or slowed down by the incident.

Even so, the panel's findings exposed shortcomings in arrangements of public consultation and in coordination within the regulatory structure.

The division of responsibility between leading economic and financial officials under the government's new political accountability system is also unclear, the panel said.

Some HK$10.91 billion (about $1.4 billion) of the market capitalization of the penny stocks was wiped out on July 26 as the market reacted strongly to the proposal by the Hong Kong Exchanges and Clearing Ltd. (HKEx) to cancel listings of companies trading below HK$0.50 for 30 straight days.

Angry investors demanded officials in charge be blamed for the losses they sustained in the stock plunge.

The fiasco has put Chief Executive Tung Chee-hwa's new cabinet of politically appointed officials to the toughest test since it took office in July.

The panel of inquiry, after a six-week probe, described the fiasco as ''unfortunate and regrettable,'' adding that it has been a ''costly lesson'' for the regulators, investors and the economy as a whole.

''We did not discover the serious cancer which we were led to believe existed when we began our task,'' the panel of inquiry said in its 280-page report.

''Instead, we uncovered some instances of errors of judgment, some perhaps even understandable in the circumstances, a few mishaps, items of miscommunications and some systemic wrinkles here and there,'' the panel said.

''None of the shortcomings we have identified are in themselves major.

''The combination of circumstances, however, led to the unanticipated events of the July 26 and the less than favorable public response to how the matter was dealt with thereafter by the authorities,'' it said.

The panel recommended the government and the market regulators to make improvements in engaging the public in consultation, assessing market reaction, reviewing the operation of the regulatory structure and strengthening investor education and protection.

''We are going to follow through totally on those suggestions to make sure that we'll move forward on this issue and that similar events will not happen in future again,'' Tung told a press conference on the panel's report.

Meanwhile, the HKEx, which is the operator and the frontline regulator of the territory's stock exchange, and the Securities and Futures Commission, which is the major market watchdog, both welcomed the panel's findings.

Both bodies said they will work to closely with each other and with the government to improve the operation of the regulatory system.

Some investors, however, said they are disappointed that the panel's report does not deal with the matter of compensation to their penny stock losses.
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Publication:Asian Economic News
Date:Sep 16, 2002
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