HK exchange's next chief likely to be from mainland

There is a good chance that from next spring the Hong Kong stock exchange will, for the first time in its history, be headed by a mainlander. The exchange selection committee, headed by its government-appointed chairman, Ronald Arculli, has agreed on a mainland-educated former investment banker to be chief executive Paul Chow Man-yiu's successor, according to reliable sources. The proposal has yet to be approved by the board and the government. To most people, this news may be surprising or even worrisome. But from those in the loop, the reaction is: 'At last.' The hope is that an exchange chief with the right knowledge and connections on the mainland will fill the big hole in Hong Kong's regulatory leadership, or should we say the city's leadership, in its dealings with Beijing. The need is pressing. For the past decade, the exchange has enjoyed an easy ride. With the mainland's stock markets trapped in a profound slump, Hong Kong feasted off a seemingly unending stream of mainland initial public offerings of ever-growing size. But these golden days all came to an end in 2007. The drying up of mega share sales by the state and the recovery of the A-share market have pushed the Hong Kong exchange into direct competition with its mainland counterparts for listing resources. The result has not been comforting for the exchange. While watchdogs on the mainland have 'discouraged' its firms from listing here, Hong Kong regulators have appealed to state leaders to bar Hong Kong-listed mainland enterprises from 'home listing.' If all of these are about the lack of trust and understanding at the working level, it got worse after the financial tsunami - more scepticism about Hong Kong and at a much more senior level. Financial security is now the top concern of state leaders, witnessing the overnight collapse of infallible financial powerhouses and even countries. The question, drummed up by Hong Kong's critics and Shanghai's supporters, is 'Can we trust Hong Kong with the listing of our strategic firms and yuan business?' In short, can the Hong Kong regulators be trusted with the country's financial stability when it comes under attack? The result is the State Council's endorsement of Shanghai's hard-lobbied plan to make the city an 'international financial centre' by 2021. Given the country's political and financial hurdles, the threat that Shanghai will become a true rival may not be real, but growing scepticism about Hong Kong in Beijing is real. Hong Kong needs a good lobbyist up north to argue its case and to get new business. The painful fact is we do not even have anyone who speaks fluent Putonghua at the leadership level, not to mention an understanding of mainland politics. So while the candidate is presumably chosen on account of his many positive attributes, attention has understandably focused on his mainland background, particularly as he is said to have little regulatory or product development experience. The identity of the candidate is a closely guarded secret. Various sources said he had spent lengthy periods with different international investment banks after receiving an education in the west. Mr Chow is not due to step down until early next year. The exchange's plan is said to be to make an early appointment of his successor to allow for a longer handover. This hopefully will mitigate the candidate's lack of regulatory experience, which may be a concern of the staff and the market. A chief executive with strong mainland connections will undoubtedly help. But mainland ties alone are not a sufficient answer to the huge challenges faced by the exchange nowadays. While the mainland is undoubtedly an important market, that alone cannot guarantee long-term success for Hong Kong. The city's future lies in its ability to bring together mainland and international players and capital. The exchange's current leadership has been slow in expanding its international business. What it needs now is a chief with international vision or at least extensive international exposure to do the catch-up work. Further, the only way that Hong Kong can remain important to China is its ability to stay ahead of its mainland peers in terms of product development and systems. The current leadership has done a decent job in product development - in particular, in derivatives. Yet its internal system has remained largely untouched over the past decade, and scripless trading is long overdue. This requires a leader with determination and knowledge. Already, news about the likely outcome of the recruitment exercise is reportedly sending chills among the exchange's staff. Their concerns may not be justified but are something the board has to address. Given the weighty challenges facing the exchange, which is a key player in Hong Kong's continuing success as a financial centre, it is imperative that the exchange be led by a person with solid, relevant experience and the highest integrity, whether he is from Hong Kong, the mainland or overseas. Am I being too demanding? Yes, because here we are talking about the job of leading the Hong Kong market into a new era - out from the old comfort zone and into difficult waters. How can we be not demanding?