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Alibaba founder Jack Ma Yun took its listing to New York last year. Photo: AFP

Breaking | HKEx decides against proceeding with dual-share-structure listing reform after SFC opposition

HKEX

Hong Kong Exchanges and Clearing has decided not to proceed with a second consultation on the introduction of dual-share-structure listings in Hong Kong after the city’s securities watchdog publicly opposed the plan.

The stock exchange operator’s decision ends more than two years of controversy over the major listing reform, which first erupted when it lost out on the mega listing of mainland e-commerce giant Alibaba.

“The listing committee has decided, in light of the [Securities and Futures Commission] statement, that it will not, at this time, proceed with finalising its draft proposal for discussions with stakeholders, nor seek to put forward a proposal for a formal consultation as originally proposed in the exchange announcement of  [June 19],” HKEx’s chief regulatory officer and head of listing, David Graham, said on Monday. “It will, however, keep this matter under review."

Alibaba listed in the United States in September last year after Hong Kong declined to give it an exemption in October of 2013 that would have allowed founder Jack Ma Yun and other executives to nominate a majority of the board even though they only owned minority stakes.

Hong Kong exchange mulls dual share structures with safeguards

Many technology firms prefer dual-share structures, also called weighted voting rights (WVR) structures, which are allowed in the US but have been banned in Hong Kong since 1989.

The SFC opposed the exchange granting Alibaba an exemption as it believes such structures violate the one share, one vote principle and are not fair to all investors.

The stock exchange issued a concept paper in August last year to ask the market whether it should study the subject. The exchange said in June its consultation had shown there was sufficient support to proceed to a formal consultation on rule changes in the third quarter of this year that would allow some large firms to proceed with such structures.

The SFC, however, issued a public statement a few days later saying its board unanimously opposed the stock exchange’s proposal to introduce dual-shares structures.  

 HKEx’s  listing committee said on Monday it would keep the matter under review, and keep an eye on future regulatory changes overseas.

SFC chairman Carlson Tong Ka-shing  said on Monday night that he respected HKEx’s decision not to proceed with the second phase consultation. He said many technology firms has delisted from the US earlier this year and planned to return to the mainland to list in the A-share market, which suggested valuations might be more of a deciding factor in the choice of listing venue than WVR structures.

“The SFC priority is to make sure that our rules protect the interest of all investors and to maintain a fair market,” he said. “As stated in our public statement on June 25, we were not yet convinced that the proposals on the dual-share structure reforms by the stock exchange managed to solve the problem of how to ensure that WVR will not be a common occurrence and the interests of investors will be fairly and fully protected.

“I believe that we should not change our rules purely because of changing market trends.”

Joseph Tong Tang, chief executive of Sun Hung Kai Financial, said he was disappointed by the HKEx decision.

“Of course we would like to see the HKEx carry out the reform on the study of dual-share-structure listings,” he said. “There are some companies that want to list in Hong Kong via a more flexible structure but now the SFC has refused to let them in. We are going to see these companies opt for listing in the US instead.”

Joseph Tong said the SFC or the stock exchange should consider introducing another new board with special trading rules to allow companies to list with a different structure from the main board.

“Many overseas exchanges also have different markets for different companies with different structures or risk levels,” he said. “HKEx now only has a main board and Growth Enterprise Market, which is not flexible enough to compete with other markets.”

Sin Chung-kai, the Democratic Party’s economic affairs spokesman, said he supported the HKEx and SFC decision.

“One share, one vote is a very important principle to protect the investors in Hong Kong,” he said. “The dual-share listing structure favours some investors at the expense of the others. This system should not be introduced in Hong Kong.

“The whole debate was due to the demands of Alibaba. But I do not think we should make any tailor-rule change for any single large company to list here.”  

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