Repeated policy fiascos point to a fundamental flaw

Journalists have big egos. We are jolly when our predictions prove true, no matter how cruel they are. So, when the regulators backed down and shortened the pre-results announcement trading ban on directors, I should have been jubilant. But I was not. Instead, I am sad. This is not only because the saga has trashed the integrity of our regulators. What's more frustrating is that we have seen it before and are going to see it again. In 2002, a consultation paper that proposed a delisting of penny stocks triggered a panic selling of stocks and a political crisis. It ended with the government ordering a withdrawal of the plan and finger-pointing among regulators. In the past month's debate on the blackout period, we have seen the same, if not worse. One can certainly criticise the 200 listed companies, including the empires of many tycoons which did not speak up during the lengthy consultation period but resorted to a public showdown a week before the official implementation of the trading ban. (See Money Matters, January 7.) One can also easily call the regulators and government officials spineless. These are all fair comments. The repeated policy fiascos indicate a deeply rooted problem that needs to be addressed. It is necessary to have a look at the role of different parties in the current saga to know where the real problem lies. First, Hong Kong Exchanges and Clearing, our market's frontline regulator and policymaker. Though the pre-results trading ban was included in its consultation paper and endorsed by its listing committee, the exchange never saw it as its own. 'It is a hand-down from the [Securities and Futures Commission],' said an exchange insider. 'Given the interests at stake, we expected it to arouse overwhelming opposition and be shot down during the consultation.' The half-hearted approach can perhaps partly explain why no separate consultation was done on this controversial proposal. Second, the SFC. It is the backseat regulator of the exchange which, on paper, has the final say by approving or disapproving policy changes endorsed by the listing committee. In this case, it's more than a gatekeeper. Making little progress in its fight against insider trading, the commission executive proposed the trading ban extension to the exchange in 2007, promising a 'championing' role for the knowingly controversial proposal. The plan eventually won the SFC board's approval. Yet, as the thing turned sour, SFC non-executive chairman Eddy Fong disowned the proposal in a press interview, insisting it was a suggestion from its advisory Public Shareholders' Group. Its non-executive board member Chan Kam-lam was among the first to suggest a review of the proposal, adding he was not aware of its significant implication until recently. Both said the exchange should have thoroughly considered the views of various stakeholders. Third, the government. It is the policy 'overseer' that leaves policymaking to the exchange and the SFC in the name of non-intervention. Throughout the episode, officials have sat on the sidelines, missing opportunities to stop the dispute from swelling into an open confrontation and political fiasco. Banker David Li Kwok-po and developer Lo Ka-shui, who masterminded the 200-strong signature campaign against the proposal, have complained in private to the press that phone messages to senior officials before or after the public appeal had not been answered. To draw an analogy, the mother that bears the baby does not raise him; the aunt raises the baby never as her own; and the grandma who is supposed to oversee the well-being of the family barely talks to the two women and the rest of the world. What can you expect from that family? That's the result of the confusing and overlapping definition of jobs among regulators and government that is enshrined in the so-called three-tier regulatory system. This denial of ownership and responsibility is ugly. The question is, how can it happen? The answer is more than the lack of courage and endurance of individual regulators. It has not only made the buck-passing and finger-pointing inevitable, but also undermined the quality of our policymaking. It's hard to imagine a regulator not weighing the pros and cons of a policy blueprint seriously if he will be solely responsible for its success or failure. We have seen it in the penny stock fiasco and we see it now. I am sure the bureaucrats will point to the beauty of the existing system in distancing the government from regulatory controversies. But when the Secretary for Financial Services and the Treasury Chan Ka-keung eventually has to sit down with the exchange and SFC to work out the watered-down plan - and when his predecessor had to bow his head on television for the penny stock mistake - I just can't see how this political buffer argument will hold water. Neither can I believe the system can continue to function given the complete loss of trust between the exchange and the SFC after the fiasco. Unfortunately, we are not seeing any attempt by the government to review the system. The listing committee announced the back-down; the government issued a welcoming statement. It may not take too long for us to feel a sense of d?j? vu. Reforming the listing committee and introducing quarterly reports are now in the pipeline. Perhaps, I can cut and paste this article very soon.