Now that the Securities and Futures Commission has declared it will enhance its role as a corporate regulator, what role should Hong Kong Exchanges and Clearing play in regulating listed companies?
Traditionally, the city's regulatory system has been divided into three layers, with the government setting the law and policy, the SFC carrying out enforcement and detailed investigations into market malpractices, and the stock exchange acting as a front-line regulator and monitoring listed companies.
Since HKEx became a listed company in 2000, there have been calls to review whether the exchange should continue to play its traditional role.
As a profit-driven company, HKEx naturally wants as many companies as possible to list on the exchange. However, this is in conflict with its role as a regulator because if it takes a hard line it may drive away potential clients.
But of course HKEx would not like to abandon its regulatory role, because if it did, the companies listed on the exchange would not take it seriously.
At HKEx's results announcement on Wednesday, chief executive Charles Li Xiaojia reiterated the exchange's role as a regulator for listed companies.
Last year, HKEx vetted 41,726 company announcements and handled 453 complaints against listed companies.
The bourse conducted 69 investigations into listed companies and issued five public censures, three public criticisms and 16 warnings. It disciplined 57 directors.
Such efforts made sense in the past, when HKEx could do the initial vetting and then refer any potential malpractices at a listed company to the SFC, which would perform a more in-depth investigation.
However, since the SFC told lawmakers last month that it is going to hire 51 new staff, including extra headcount for a new team set up to vet company announcements and to speed up its investigation of companies, why does HKEx need a team to do the same thing?
This is simply a waste of resources, the only benefit of which is to create job opportunities for bureaucrats.
If we must choose only one among the two organisations, the SFC is in a better position to do the regulator's job. The Securities and Futures Ordinance empowers it to collect evidence, conduct interviews and apply for court orders to freeze the money of alleged insiders, as well as require those that have committed misconduct to compensate investors.
In other words, the SFC has teeth, since it can impose fines or initiate criminal prosecutions against companies or directors that breach the rules or the law.
In this respect, the exchange is toothless. It can only reprimand a company or its directors or require the directors to take classes in good corporate governance practices - a painless penalty.
It is time for the government to rethink the role of HKEx as a regulator.