Roadmap for future of listing regulation more like roadkill
Compromise rules as government backtracks on idea of a single market watchdog
The extent to which the government has backtracked on listing regulation is truly spectacular. Its 'roadmap' for the future is not. Sweeping reform has given way to an industrial-sized fudge.
The notion of a single gatekeeper for the Hong Kong market is a distant memory, one that barely warrants a mention. Instead, compromise is king.
Few would have argued 12 months ago that the crux of the problem was the front-line vetting of candidates to the exchange by the exchange, the government included. It endorsed a report by an expert group which proposed the shifting of the listing function to a sole regulator.
Yesterday's conclusions seem to exist in blissful ignorance of the expert group's findings. No reference was made to its proposal, bar the single sentence that 'we note that a few submissions have indicated a preference for the transfer of listing functions to the SFC'. However, such 'drastic structural reform' would now be premature.
Instead, the HKEx gets to keep its role as gatekeeper and the SFC keeps its say under the dual filing system. Investors have been thrown a bone with the introduction of statutory backing for some of the listing rules, to be enforced by the SFC.
Not all of them, however. There will now be listing rules enshrined in law and others that are not. Financial reporting and price-sensitive disclosure by companies is in, as is shareholder approval for certain notifiable transactions.
Omitted are disclosure rules relating to other notifiable transactions and specific events. This is to be considered in phase 2 of the government's roadmap, which appears woolly in conception and devoid of a timeframe. Such a fragmentation of the disclosure-related listing rules up for statutory backing is contrary to the wishes of the SFC: it had banked on enforcing the entire package. The regulator had advanced what it saw to be a pragmatic and conciliatory solution, but in the end it was watered down.
The HKEx suffered a minor blow in that the rules to be given statutory backing will be put in subsidiary legislation, a faster option than primary laws, which have a tendency to get bogged down in the Legislative Council and could even fall foul of political lobbying by vested interests.
However, the biggest loser is the investor, while the government's image runs a close second. Its backdown on a simplified, principled approach to market reform smacks more of roadkill than a roadmap.