Looking for Market Integrity in China

Economic forces globally are driving conformity in a wide range of practices, says Reuben Guttman of Guttman, Buschner & Brooks PLLC.

In Hong Kong’s financial district, high end stores like Cartier, Rolex and Burberry outnumber fast food chains like McDonalds and KFC, while up north on Nanjing Xi Lu road in Shanghai, that city’s bustling version of Fifth Avenue, has become a haven for the world’s most high end retailers. With political and cultural difference tempered by economic goals, Hong Kong and mainland China are searching for mechanisms to create greater integrity in financial markets and generally maintain China as a place for investment.

New research

The CFA Institute, a global association of 115 thousand financial analysts, released the results of its Global Market Sentiment Survey of its members at a conference recently held in the city. Although seventeen percent of respondents said that China would provide the best investment opportunity in 2013 – second only to the United States with 32 percent, a majority do not expect the global economy to expand this year and believe that the currently level of integrity for global markets is poor. Over half of the members cited concerns about the ethical culture within financial firms as the source of this lack of integrity, but respondents in Europe and China differed greatly about the most serious ethical issue in the coming year. Respondents in Europe cited the mis-selling of products by financial advisors, but respondents in China cited market fraud and the integrity of financial reporting as substantially greater concerns.

Responding to concerns

Hong Kong appears to be aggressively seeking out ways to respond to these concerns and strengthen investor confidence by providing rights of redress. With the encouragement of the Hong Kong government, the Financial Dispute Resolution Centre has been launched. The FDRC provides rights of redress for small investors with losses up to 500 thousand Hong Kong dollars, or roughly the equivalent of 75 thousand US dollars and 50 thousand British pounds sterling. Hong Kong is also looking at implementing a class action law that will allow investors to aggregate their claims to pursue securities fraud cases.

Bringing conformity

Interest in these changes, at least in Hong Kong, is running high. An investor conference sponsored by the CFA and the International Investor Education Foundation drew nearly 200 participants at the city’s Four Seasons Hotel at the International Financial Center on Hong Kong Island. Speakers included Anthony Neoh, former Chief Advisor to the China Securities Regulatory Commission (CSRC), Paul Smith, Managing Director Asia Pacific, CFA Institute, and Sou Chiam, CEO, Financial Dispute Resolution Centre Ltd. Whatever the outcome of the discussions at this conference, one thing is clear: economic forces in this global economy are driving conformity of financial practices, ethics, and perhaps regulation.