Fresh reminder of need to end muddle over HKEx roles
Alibaba saga shows why exchange should get on with making money and leave regulation to SFC
Hong Kong Exchanges and Clearing's dual role as a company looking to maximise profits as well as a regulator responsible for vetting public offerings is back in the spotlight in the wake of the Alibaba episode.
Hong Kong is among a handful of markets worldwide that still allows the stock exchange to market companies to list and at the same time is involved in the listing approval process. London and Singapore have long ago brought in independent regulators to do the latter.
The dual system has attracted much criticism since HKEx became a listed company in 2000. As a listed company, it receives listing fees from companies and the bigger the size of the offering, the more it collects. This naturally raises the conflict of interest question for the exchange.
HKEx argues it is not the only one involved in the vetting process. After the executives of the listing division of HKEx approve an initial public offering an independent listing committee consisting of lawyers, accountants and representatives of listed companies approves the listing. The listing committee, however, is still part of the stock exchange framework of which the HKEx chief executive is a member. HKEx - headed by Charles Li Xiaojia - also has to share regulatory authority with the Securities and Futures Commission, which has the final say on IPOs.
There is obvious duplication between the SFC and HKEx. Why are the two hiring two sets of people doing basically the same job? HKEx would in fact save a pile on its headcount and deliver better results for shareholders if it gave up its regulatory function and passed it all to the SFC.
Another important question is, how far does HKEx's writ run? The exchange can act as a frontline regulator and it is the one that floats ideas on any listing rule changes. But again, the SFC has the final say.
In the latest controversy over Alibaba Group, which wanted to retain a partnership structure that would allow the management to keep control of the company after its listing in Hong Kong, both HKEx and the SFC turned down the appeal for a structure that would give one group of shareholders more rights than another.
If HKEx had no regulatory role, it could have freely thrown its weight behind the mainland e-commerce giant. It might also have come up with innovative ideas to attract technology firms to list here. But because of its regulatory role, it can't even freely articulate its position.
It's time the exchange and the government gave the current structure a rethink. Why not let HKEx concentrate on making money and leave all regulatory responsibility to the SFC? Wouldn't that make their roles much clearer and more efficient?