HKEx chief rebuts bitter criticisms of reforms

PUBLISHED : Wednesday, 27 July, 2011, 12:00am
UPDATED : Wednesday, 27 July, 2011, 12:00am


Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia has issued a 10,000-word public letter hitting back at criticism from local brokers of his reform plans.

The reforms, which include a move to cut brokers' lunch break to one hour from March next year, are unpopular with some brokers.

Li, however, said they are necessary to maintain Hong Kong's competitiveness and to capture business opportunities related to the internationalisation of the yuan.

'Hong Kong is no longer the only listing platform for mainland enterprises, as other markets are competing for these companies,' Li wrote. 'The HKEx is also facing an increasing number of competitors, such as the new electronic trading platforms known as dark pools.

'Hong Kong's market has a lot of weaknesses in its infrastructure and unless we carry out the reform plan we will lose out to the others.'

The letter signals Li's determination to push through the reforms despite the street protests of hundreds of small brokers two weeks ago that urged the exchange to abandon its reform plans. The top complaint is about the extended trading hours.

In March, the market's opening time was brought forward by half an hour, while the traditional two-hour lunch was cut by 30 minutes. From March next year, the lunch break will be cut to one hour, matching that of international markets.

Most major markets, such as New York and London, now trade between six and eight-and-a-half hours a day without a lunch break. Hong Kong's five hours of trading is among the shortest in the world.

Brokers are also worried that their dinner break would be similarly shortened. The HKEx is also proposing to add a six-and-a-half hour evening futures trading session from 4.45pm to 11.15pm to match international practice. Large brokers support the plan but small players complain that it will increase costs.

'The local brokers and their frontline staff are the most hard hit by the extension of trading hours,' Li acknowledged. 'The fact that they are dissatisfied and disgruntled is understandable and we will continue to listen to their concerns.'

Li, however, showed no indication that he was backing away from the proposed reforms, including investing HK$2 billion to upgrade the data and technology platform of the exchange. Although small brokers said the upgrade would be too expensive, Li argued it was needed to compete with international bourses which have systems to handle higher trading volumes and are faster than Hong Kong's.

Also, Li said he insisted on reforms to increase reserve funds and introduce a new margin fund. Both reforms are intended to provide a safety net in the event that a brokerage collapses.

'The stock market turnover increased by seven times between 2000 and 2008, but the size of the reserve fund has contracted. The global financial crisis has resulted in regulators around the world shoring up their risk management measures and HKEx is no exception to that,' Li said.

Li said he agreed more time is needed to study other controversial proposals such as relaunching the closing auction system and narrowing the trading spread by adopting the international practice of not displaying brokers' names during trades. He said these reforms would also benefit Hong Kong, but they are not as urgent as the others, so there could be more time for discussion before implementing them.

Legislator Chim Pui-chung said the proposed reforms favour mainly international players and neglect the difficulties of local brokers. 'Maybe the exchange could open 30 minutes earlier from March next year so it can extend trading hours without cutting short the lunch hour,' Chim said.