Insider Dealing

Though SFO has been implemented since Apr 2003, those insider dealing cases happened before that date were still heard by the Insider Dealing Tribunal (IDT) under the old regime. Yesterday IDT announced the conclusion of inquiry into suspected insider dealings of Tingyi (322) listed on SEHK.

According to IDT's report, in 1998 & 1999 Tingyi recorded net losses but in 3 Aug 2000 it announced a net profit for the first half of that year. On 11 Jul 2000, Tingyi's Investment Relations Manager Debbie Ho met with Jim Lam, a research analysts of Deutsche Bank, in a company visit. During the meeting Debbie Ho provided Jim Lam the following information:

• Total sales growth for Tingyi products for the first 5 months of 2000
• Profit margins for some of Tingyi’s more important products
• The year on year decline in operating costs (which may have been a “target” rather than an actual figure)
• Cash on hand and debts at the end of the first half of 2000
• Information concerning the restructuring of Tingyi’s distribution system
• Information concerning increasing consumer demand on the Mainland
• Information that Tingyi’s major competitor had ceased a price war in the mainland market

After the meeting Jim Lam contacted Anna Ho (a fund manager of Royal Skandia) and told her the information received from Debbie Ho. Subsequently Jim Lam published research reports to recommend Tingyi as a "Buy", and Anna Ho purchased Tingyi's shares for her funds, both before the interim result announcement. After the announcement on 3 Aug 2000, Tingyi's share price and turnover soared.

The regulatory concern of this case was whether Debbie Ho, Jim Lam and Anna Ho had engaged in insider dealing (including "tipping off"). A bit surprisingly, IDT concluded by unanimous decision that the information provided to Jim Lam and Anna Ho by Debbie Ho was not "relevant information", thus there was no insider dealing in Tingyi's shares.

But unfortunately the report did not explain IDT's viewpoints for reference by market practitioners (esp. research analysts & fund managers).