Opinion | Fresh reminder of need to end muddle over HKEx roles

Hong Kong Exchanges and Clearing's dual role as a company looking to maximise profits as well as a regulator responsible for vetting public offerings is back in the spotlight in the wake of the Alibaba episode.

Hong Kong is among a handful of markets worldwide that still allows the stock exchange to market companies to list and at the same time is involved in the listing approval process. London and Singapore have long ago brought in independent regulators to do the latter.

The dual system has attracted much criticism since HKEx became a listed company in 2000. As a listed company, it receives listing fees from companies and the bigger the size of the offering, the more it collects. This naturally raises the conflict of interest question for the exchange.

HKEx argues it is not the only one involved in the vetting process. After the executives of the listing division of HKEx approve an initial public offering an independent listing committee consisting of lawyers, accountants and representatives of listed companies approves the listing. The listing committee, however, is still part of the stock exchange framework of which the HKEx chief executive is a member. HKEx - headed by Charles Li Xiaojia - also has to share regulatory authority with the Securities and Futures Commission, which has the final say on IPOs.

There is obvious duplication between the SFC and HKEx. Why are the two hiring two sets of people doing basically the same job? HKEx would in fact save a pile on its headcount and deliver better results for shareholders if it gave up its regulatory function and passed it all to the SFC.

Another important question is, how far does HKEx's writ run? The exchange can act as a frontline regulator and it is the one that floats ideas on any listing rule changes. But again, the SFC has the final say.