Investor interest must come first in battle between regulators
The turf war between the Securities and Futures Commission and Hong Exchanges and Clearing must be settled to the benefit of market players
Less than halfway through a three-month consultation, joint proposals by the two market regulators to reform public company listings have sparked a turf war in which interested parties have stirred the pot. The latest to do so include Robert Owen, founding chairman of the Securities and Futures Commission, and former commerce minister Frederick Ma Si-hang, now chairman of the MTR Corporation, who favour boosting the influence of the SFC to enhance investor protection.
But Hong Exchanges and Clearing director Vincent Lee and Chamber of Hong Kong Listed Companies vice-chairman Lo Ka-shui have come out strongly against the proposals, with Lo warning that over-regulation could “kill off the IPO market”.
Each side of the argument upholds a worthy objective – a level playing field for investors and a vibrant market. Hong Kong’s best interests lie in finding the right balance so that it inspires market confidence. The proposals go some way towards this. The removal of the stock exchange chief executive from the current committee that oversees new listings will enhance the perception of fairness, given that HKEX is both a profit-driven public company and a frontline regulator. But he will still sit on a new SFC/HKEX committee that will set listing policies. The intended effect – to bring into play sooner the SFC’s power to change listing policies and reject listings approved by HKEX – will not fundamentally change the role of either regulator. But it could avoid the unsettling spectacles of the SFC intervening after the event to expose wrongdoing and try to recover investors’ losses.
The inherent conflict created by HKEX being both a player and a regulator remains. It is regrettable the reforms do not follow many overseas examples and make the SFC a sole independent regulator. It is paramount to our claim to be an international financial centre to be seen to occupy the high ground of investor protection, particularly in regard to IPOs. Technical benchmarks like profitability and capitalisation remain important, but they do not count for as much as the quality of financial disclosure.