Turf war between Hong Kong regulators escalates as HKEX director opposes listing reform
The turf war between Hong Kong’s two market regulators has escalated with a director of the local exchange openly opposing a reform proposal that would give more power in the listing process to the Securities and Futures Commission (SFC).
Vincent Lee, a director of Hong Kong Exchanges and Clearing (HKEX), said the exchange board has not approved or endorsed the proposed reform jointly announced on June 17 by the HKEX head of listings David Graham and the SFC executive director Brian Ho.
Lee, who is also a stockbroker, said the HKEX board did not approve the content of the reform and explained that the proposals were prepared by staff of the exchange listing division and the SFC.
“I personally am totally opposed to [the reforms] and would lobby all brokers and the public to express their concerns over the many negative implications of the reform,” he said.
“I don’t know anyone at the HKEX board or any brokers who have agreed with the reform plan.”
A spokesman for HKEX confirmed that the board has not approved the reform plan but agreed to move forward with the consultation process.
Lee is the latest in a chorus of voices opposed to the reform, including some accountants and The Chamber of Hong Kong Listed Companies vice-chairman Lo Ka-shui, who publicly slammed the proposals as giving too much power to the SFC and warning they “may kill off the IPO market”.
The ongoing three-month consultation is aimed at changing the listing process. Under the proposals, a listing regulatory committee and a listing policy committee would be established, with equal representation from the SFC and HKEX.
The regulatory committee would handle applications deemed complicated by the exchange’s listing division. The other panel would decide on policies. Both committees would require a majority vote in making any decisions.
The reform proposals, if given the go ahead, would replace the current system where the HKEX’s in-house listing division staff give preliminary approval to a listing and then submit it to the listing committee, comprised of 28 members including accountants, lawyers, listed companies executives and fund managers, for the final go ahead. Currently, the SFC is not directly involved in the discussion process but has veto power to reject any application or listing policies.
SFC chairman Carlson Tong earlier told the South China Morning Post in an interview that the proposed reform would enhance listing quality and investor protection.
“The SFC now acts only as a goalkeeper in a football match. The proposed changes will allow it to play the roles of a defender and midfielder while HKEX will remain as the striker,” Tong said.
Albert Au Siu-cheung, chairman of accounting firm BDO and a director of the SFC, said the reform proposals would allow the SFC to be involved at an earlier stage of the listing process which would enhance communications between it and the HKEX.
However, HKEX director Lee rejected such claims. “For the SFC to be involved in the listing process earlier, it will only allow it to say ‘no’ earlier. This will make things worse,” he said.
“At present, HKEX could consult the market on some [future] proposals which may eventually be banned by the SFC. If the current proposed reforms go ahead and the SFC is involved earlier, then any new listing policy suggestions disliked by the SFC may be killed off and there wouldn’t even be a chance for consultation,” he said. This was a prime example of how the reform plan would see the SFC becoming too powerful, he added.
Lee said the regulator should not ban a company from listing just because it “believes” it may do something bad in future.
“It is just like marriage, you fall in love with a girl and you marry her. Then the relationship may break down and that results in a divorce. It is not good but you wouldn’t decide not to marry her just because of fear of a possibility of a divorce,” he said.
“Likewise, any good company may turn bad after listing. The regulator should not prevent it from listings just because you think it maybe turn bad later. As long as it fits all listing criteria, it should be allowed to be listed. If it really does some malpractice, then the regulators should crack down it,” Lee said.
Lee, like Lo of the chamber of listed companies, said the current listing structure should be left unchanged, and the SFC could add some members to the listing committee to increase its voice. “The Hong Kong IPO market was number one worldwide last year and in the first half of this year. This proves the current system works well and does not need much change,” he said.
Lee said the number of new listings in London decreased substantially after the London Stock Exchange was removed from the approval process, which moved under the authority of an independent body.
“Do we want to see Hong Kong also have big drop in new listings?” he asked.
Some brokers are also opposed to the reform. Jojo Choy, permeant honourable president of The Institute of Securities Dealers, said “brokers would not agree on any reform that would add power to the SFC without checks and balances”.
Kenny Tang Sing-hing, chairman of The Hong Kong Institute of Financial Analysts and Professional Commentators, is also opposed to the reform. “The regulators should not assume all listing candidates are bad boys. It should let the market players of the listing committee decide on listing matters while the SFC focuses on enforcement to crack down on malpractice,” Tang said.