HKEx mulls disciplinary action on Goldman Sachs
Exchange to decide if bank should be penalised over its refusal to pay out in full for mispriced warrants
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Exchange to decide if bank should be penalised over its refusal to pay out in full for mispriced warrants
May Chan
24 May 2011
The stock exchange is seeking to review Goldman Sachs's suitability for issuing warrants in the future and is considering disciplinary action on the Wall Street bank for a mathematical error that caused the suspension of HK$600 million worth of Nikkei-linked warrants it issued.
The error meant that the warrants were mispriced, causing them to soar in value, but Goldman Sachs refused to pay investors the closing prices of the warrants, blaming the mistakes in the issuing documents. Investors have subsequently refused a revised offer from Goldman Sachs.
"From the exchange's point of view there are outstanding issues that need to be resolved," said Mark Dickens, head of the listing division of the HKEx at a financial affairs panel meeting on the matter in the Legislative Council yesterday.
"One is the suitability of Goldman Sachs to issue warrants in the future. That's not of itself a disciplinary issue. That's a question of Goldman Sachs satisfying us that it is capable of making sure documentation is accurate, capable of communicating well and capable of responding quickly to incidents of this sort.
"In addition to that, there is a disciplinary issue as to whether Goldman Sachs should be punished for allowing the incident to occur at all."
He said he would not go into the disciplinary issue in detail because he did not "want to be in a situation where Goldman Sachs can avoid disciplinary proceedings by claiming that we have pre-judged the case".
Dickens added that the HKEx would meet with all warrant issuers to discuss a review of their programmes. These would include warrant documentation, the review of the documentation after the warrants' issue, monitoring of unusual price and volume movements in warrants, and communication with investors, HKEx, and the media in response to "unanticipated events".
It is the first time that the Hong Kong bourse has mentioned possible disciplinary action against the investment bank since the incident involving the suspension of the Nikkei-linked warrants at the end of March.
Legislator James To Kun-sun, a democrat who is also a member of the panel, said the HKEx's latest stance was "much delayed but welcomed" by affected investors, who were hoping that the HKEx would put pressure on Goldman Sachs to review its buyback offer.
However, a spokeswoman for Goldman Sachs said the buyback offer from the bank was "appropriate and reasonable", and that the bank saw "no basis for us to revise the economic terms of the offer".
She said the bank remained committed to the market, but had announced last month that it would suspend issuing new warrants to focus on resolving the matter.