FINANCIAL REGULATION
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Legislative Council elections 2016

Hong Kong should change listing rules to attract tech companies to raise funds, candidates say

Candidates for Legco’s financial services also urge government to do more to help small brokers, who have been losing market share since 1999

PUBLISHED : Sunday, 28 August, 2016, 3:40pm
UPDATED : Monday, 29 August, 2016, 1:50pm

Christopher Cheung Wah-fung, Ricky Chim Kim-lun and Gordon Tsui Luen-on will compete for 622 votes in a four-year term to represent Hong Kong’s financial services industry in the Legislative Council. Eligible voters are stockbrokers, futures and gold traders.

They are all calling for reforms to change the Hong Kong market’s dominance by financial services and property companies to attract technology companies.

They are also calling for measures to reboot the broking industry and help the smallest brokers survive

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A week before the September 4 election, the three candidates speak to the South China Morning Post about their thoughts on listing reforms:

Christopher Cheung Wah-fung

Cheung, 64, the incumbent lawmaker who’s seeking re-election, said Hong Kong needs a new board with flexible listing rules to attract technology companies to raise funds here.

“The Growth Enterprise Market (GEM), launched in 1999 to attract technology firms, was a failure,” he said. “We need a new board with listing rules that are more relaxed than the main board and GEM.”

Hong Kong lost its top spot as the world’s largest IPO market in 2014 when Alibaba moved its record US$25 billion public offer to New York. Alibaba is owner of the South China Morning Post.

Hong Kong bars publicly traded companies with a dual shareholding structure, or shares that give shareholders unequal voting rights. That’s compelled many technology companies to look instead to the US to raise funds.

Only 22 of the 343 companies, or 6 per cent of the total, listed in Hong Kong between 2010 and 2013 were technology related, Cheung said. Of the 30 mainland Chinese companies listed in the US, 29 had dual-class structures.

“If Hong Kong can find a way for dual-class structure that protects investors, I would support it,” he said.

Hong Kong’s government should work with Chinese regulators to let local brokers sign on new clients on the mainland, he said.

“Hong Kong is a small market with a population of only 7 million,” he said. “If Hong Kong brokers can go north to open accounts for clients on the mainland, it would be very helpful.”

Gordon Tsui Luen-on

Tsui, 56, a former banker who joined the securities industry in 2000, is now managing director of Hantec Group International Finance.

Like Cheung, he wants Hong Kong to implement a third board with a different set of listing rules to attract technology companies.

“Hong Kong needs a new board with different regulations from the main board and the GEM to meet the needs of technology companies,” Tsui said.

Ricky Chim Kim-lun

Chim, 47, is a veteran of the financial industry of two decades, and a director of several listed companies. His seat was formerly held by his father Chim Pui-chung.

Hong Kong should follow US regulations to attract a wide range of companies to list here, not just IT firms, he said.

“We want companies in all industries and all sizes to list here to make it a diversified market,” he said.

Chim is also opposed to letting the SFC decide on what companies to list.

“Hong Kong does not need a new board,” Chim said. “Hong Kong should adopt a disclosure based regulatory regime that allows companies to list as long as the disclosed information meets the SFC’s standards. If the US can do it, so can Hong Kong.”

Even if public companies offer shares with different voting rights, they should still be allowed to raise funds in Hong Kong, and it’s up to investors to decide it they want to accept these unequal rights, he said.

Hong Kong’s broking industry is dominated by 14 of the so-called Category A brokers owned by large banks, now with 56.2 per cent share of daily transactions, up from 28 per cent in 1999.

The middle market, comprising 51 Category B brokers, keep a market share of about 33.4 per cent of trading every day.

The bottom of the market, with 435 small brokers in Category C, now make up 10.4 per cent of turnover, shrinking from 40 per cent market share from their heyday in 1999.

The smallest brokers have been unfairly treated by the regulator and the government, Chim said.

“Many government policies don’t benefit the small players, and may gradually force them out of business,” he said. “There should be more policies in place to help the small brokers compete with the big players.”

On Hong Kong’s proposed listing reforms:

All three candidates object to the listing reforms proposed in June by the HKEX and the SFC.

Under the proposal, two new committees will be established with equal number of representatives from the HKEX and the SFC to set policies for listing companies on the exchange.

That’s too much power in the hands of the SFC, according to all three candidates. The proposal would be of little help to increase the Hong Kong bourse’s competitiveness.

As many as 95 per cent of all the local brokers he’d met are all opposed to the proposed reforms, Tsui said.

“The proposed listing reform would only complicate the listing process and lengthen the time for the approval, “ he said. “It would not speed up the process. If the SFC insists on going ahead with the reform, it’s going to kill off the market here and add further damage to the low market turnover.”

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