The CFA Institute Centre for Financial Market Integrity is calling for greater regulation of share pledges by directors and controlling shareholders of publicly listed companies in the Asia Pacific.
The request in a research paper lists several recent instances, including ABC Learning in Australia, where pledged shares were forcibly sold to meet margin calls, resulting in large share price declines and sometimes a change in control of the company.
The paper recommends specific regulations for controlling shareholders and directors to disclose details of shares pledged on an “event basis”.
It also recommends the disclosure of shares owned by directors and shareholders as well as the percentage of shares owned to total issued capital.
Lee Kha Loon, head of the CFA Institute Centre in the Asia Pacific region, said all Asia Pacific markets require the disclosure of material price-sensitive information, but the onus is on company directors to determine whether information needs to be disclosed to the market.
In the case of pledged shares, Loon said this disclosure can occur when the share price approaches trigger points when lenders can exercise their right to sell shares pledged for margin loans.
This may result in further sell down of the shares by traders and investors, he said.
