New HKEX CEO starts job
Nicolas Aguzin, the new Chief Executive Officer of the Hong Kong Exchanges and Clearing Limited, began his role on 24 May, and on his second day, gave a speech on bolstering the bourse’s position as a strong link between global and Chinese capital markets. “Hong Kong has a key role to play as China continues opening up its market,” Aguzin said at the annual LME Asia Metals Seminar organized by London Metal Exchange (LME), an HKEX unit. Aguzin, an Argentinian and former investment banker at JPMorgan Chase, succeeds Charles Li and is the first non- Chinese person to helm the exchange since it was established in 2000. HKEX shares surged 5.4 percent to HK$474.60 the same day, the highest in four months.
Hong Kong’s corporate governance still needs work, according to new report
A new report issued by the Asian Corporate Governance Association (ACGA) has ranked Hong Kong joint second in Asia in its 2020 corporate governance market ranking, citing whistleblowing and anti-corruption enforcement as factors that could be improved. The city’s ranking, which is tied with Singapore, puts it behind Australia. The report, titled Future Promise: Aligning governance and ESG in Asia, identified a greater need for board diversity in Hong Kong, independent boards and a quality of governance reporting, but commended the city’s efforts in responsible investment and stewardship, and the Financial Reporting Council becoming the independent audit oversight board.
U.K. FRC fine for challenger firm casts doubt on small firms amid Big Four break-up
The Financial Reporting Council in the United Kingdom has fined Haysmacintyre, a challenger firm, £125,000 (HK$1.37 million) for its faulty audit of engine parts maker Associated British Engineering (ABE). The watchdog also fined the head of the firm’s audit and assurance department David Cox £17,500 (HK$192,000). Cox led the audit of ABE. The penalty spotlights concerns regarding the ability of small firms to audit listed companies and comes amid the U.K. government’s consultations to propose breaking the dominance of the Big Four by giving small firms a share of the market for auditing FTSE companies.
AICPA and CIMA release updated audit risk guidance for cryptocurrency
The American Institute of CPAs and the Chartered Institute of Management Accountants issued a joint guidance on auditing and accounting digital assets such as cryptocurrency on 25 May. Originally released in 2019, the guide Accounting for and Auditing of Digital Assets, includes new authoritative guidance on audit risk assessment, processes and controls, laws and regulations. The guide comes after a global decline in the value of cryptocurrencies this month and ongoing concerns from digital asset investors about increased regulation from the Securities and Exchange Commission and requirements from the Internal Revenue Service to improve reporting of cryptocurrency transactions to stem tax evasion and money laundering in the United States.
SEC green lights Nasdaq proposal to allow direct listings
The U.S. Securities and Exchange Commission (SEC) has accepted a proposal by Nasdaq to allow companies to raise capital through direct listings. A direct listing is when employees and investors sell their existing stocks to the public. The SEC said Nasdaq’s proposed rule change was consistent with the watchdog’s rules and regulations and that it would provide investors with another option besides a traditional initial public offering (IPO), according to a filing dated 19 May. The move is a breakthrough for the exchange operator, which had been pushing for an alternative for companies to raise money.
Hong Kong insolvency proceedings to be recognized in Mainland China
Hong Kong and Chinese courts will recognize insolvency, bankruptcy and restructuring orders under each other’s laws following a new arrangement announced this month. Under the agreement, liquidators from Hong Kong may apply to Mainland courts for recognition of insolvency proceedings in Hong Kong, while bankruptcy administrators from the Mainland can apply to the Hong Kong High Court for recognition of bankruptcy proceedings in the Mainland. China’s Supreme People’s Court has designated Shanghai, Xiamen and Shenzhen as pilot cities for the scheme, which could be expanded to more Chinese cities in future. Lawyers believe the agreement will boost Hong Kong’s reputation as a platform for investing in Chinese companies, the Financial Times reported.
Oatly shares start trading on Nasdaq
Shares of Oatly, the Swedish oat drink company, began trading following its public market debut on 20 May. The company, which priced its IPO in the United States at US$17 per share a day earlier, saw its opening trade climb to US$22.12 and its shares up 30 percent above its IPO price, giving it a market value of US$13.1 billion. Oatly, which produces milk substitutes made from oats, has seen rapid growth in recent years largely fuelled by health-conscious millennial and Gen Z customers concerned about the environmental impact of purchasing and consuming animal-based products.
U.S. turns up heat on Chinese companies refusing to disclose audits
The U.S. Public Company Accounting Oversight Board (PCAOB) has issued a draft rule to expedite the implementation of a law that would force Chinese companies listed on U.S. stock exchanges to delist in three years if they refuse to share their audit papers for review. The rule change would provide a framework to identify whether local authorities held back on its probes of foreign accounting firms that audit U.S. listed companies. “The rule addresses situations where overseas authorities have denied the PCAOB the access it needs to conduct its mandated oversight activities,” said PCAOB Chairman William Duhnke III. The rule is the result of U.S. officials demanding more transparency from listed Chinese companies and follows Luckin Coffee’s accounting fraud, which led to its delisting in June 2020.
JD.com’s logistics unit goes public in Hong Kong
Shares of JD Logistics, the logistics arm of Chinese tech giant JD.com, rose by 14 percent when its listing debuted on 28 May. The company raised US$3.2 billion from the listing, giving it a stock market value of US$36 billion. Shares of the company opened at HK$46.05, the lower end of its expected range, compared to the HK$40.36 price in its IPO. The listing is the second largest listing in Hong Kong so far this year, according to Reuters, and the third to raise more than US$1 billion. “We are going to use the funds raised from the IPO to further improve our networks, including in the lower-tier and suburban areas in China, and the infrastructure of the overseas markets,” said Yu Rui, JD Logistics Chief Executive Officer, on the day of the listing.
Joe Biden orders U.S. banks and companies to disclose climate risks
U.S. President Joe Biden signed an executive order on 20 May to force a range of U.S. banks and companies to disclose the risks they face from climate change. The order aims to bring the U.S. up to speed with a growing list of countries prioritizing the issue of climate change for financial regulators and central banks, and to strengthen the U.S. financial system against climate-related risks. The order will see U.S. Secretary of the Treasury Janet Yellen working with members of the Financial Stability Oversight Council to disclose how they plan to “reduce risks to financial stability.” The move comes four years after former U.S. president Donald Trump pulled out of the Paris Climate Accord.