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Jake Van Der Kamp

You may have been reminded of the story of the Hare and Tortoise by a headline in this newspaper yesterday proclaiming that 'Nasdaq 7 start slowly'.

This is how the script calls for the tortoise to start but don't think of a steady plodder that can still win its race in the introduction of these seven Nasdaq stocks to our stock exchange on Wednesday. That first day HK$18.64 million in turnover may still prove about as fast as this tortoise can go.

To understand why, let us assume that the itch strikes you one day to buy a few shares of Starbucks Corp, one of the seven. We shall assume you do not have an account with an American broker and do not intend to open one.

It no longer matters, you tell yourself. Starbucks is now traded in Hong Kong and I can get my local broker to buy me some. So you ring him up and tell him to buy a thousand Starbucks.

Now put yourself in your broker's shoes. He finds Starbucks' number (after some searching because this isn't Cheung Kong), enters it on his keyboard and one of two things appears on his screen.

Either he sees nothing because no one is buying or selling the stock in Hong Kong just then or he sees an offer price so ridiculously high that there is no way he will lift the offer.

There is a small chance, of course, that he will see a seller of a few shares at a reasonable price, particularly in the first few days of trading because it would all be too embarrassing otherwise, but don't count on it for long.

And the reason is that the Hong Kong board probably will not be his first stop anyway.

He will call an American broker and ask if he is making a price in Starbucks, which, of course, the American broker will do because he is an American broker and that is how American brokers do it.

Remember that we are talking about Nasdaq here, a market that has succeeded by taking stock trading off stock exchange floors and doing it on screen and phone instead. It is not going back to the floor just to suit Hong Kong's convenience.

So your broker and his American counterpart quickly strike a price (quickly because a thousand shares is hardly worth the nuisance) and if you want to pay in Hong Kong dollars they will only too gladly oblige. That's an extra slice you will pay them both in foreign exchange conversion.

The American broker may or may not have already had those Starbucks shares he sold your broker in the 'book' he maintains but he is unlikely to bother himself seriously with Hong Kong rules on short sales if he does not.

This is the way Nasdaq operates. Does Hong Kong want to be a player in the global securities market? Then it plays by the Nasdaq rules.

That 'book' is passed over to the American broker's London colleague when London opens, then to New York and next day back to Hong Kong again, by which time the tiny Starbucks trade has long been fully done and forgotten.

There is one thing that no one in this game will do, however, and that is to post all the bids and offers in the 'book' on a Hong Kong stock exchange board as the 'book' comes through Hong Kong. Would you show your hand like that in a poker game? Forget it.

Our local board is for Nasdaq public relations only. A few trades will be done on it to keep up the public display but otherwise it will be a way of seeing whether anyone will bite on bids that are too low and offers that are too high in sizes that are too minuscule for anyone to care much.

What we have here in these Nasdaq 7 is just more evidence that management of our stock exchange has been taken over by civil servants who haven't the foggiest idea of how a market works.



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Starbucks

Nasdaq 7 far from magnificent