Abstract
On 20 October 2008 CITIC Pacific Limited, a constituent stock of the Hang Seng Index, issued a profit warning to announce that it had losses of approximately HK$15.5 billion on leveraged foreign exchange contracts. This quantum represented some 80 percent of its aggregate after tax profit for the preceding two financial years and caused a 55 percent slump in its share price by the close of trading on 21 October following its one-day suspension. In addition, the losses necessitated the issue of a US$1.5 billion convertible bond to CITIC Group in Beijing which on conversion increased its shareholding to a 57.6 percent majority interest in CITIC Pacific.In the opinion of the author this case highlights a lacuna in the regulatory framework in Hong Kong with some anomalous outcomes likely. In a nutshell, while the company and its directors will be censured for their breach of the Listing Rules they are unlikely to be correspondingly sanctioned under the Securities and Futures Ordinance. This article contends that the rectification of such anomalies requires the introduction of statutory backing to the Listing Rules which was first discussed by the government in 2003.
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