THE International Securities Consultancy (ISC) has taken its bid to reform the stock exchange to the Consumer Council. 'We have sent a copy of the report to the Consumer Council and will have a series of high level talks with the council chairman early next year,' said William Woods, director of the consultancy. The ISC wants restrictive practices in the stock exchange eliminated. He said the measures are outlined in a report, The Right Way Forward, prepared by the ISC in November. The report called for radical changes in both the legislation and the structure of the existing stock exchange, including putting an end to the exchange's monopoly status. Also included in the report was a list of measures the consultant considered anti-competitive. The maintenance of fixed minimum commission rate of 0.25 per cent was criticised as one which drives up the cost of dealing. Same as the limitation on the number of members, the one-share-one-terminal practice, limited order size and branch numbers which were also labelled as anti-competitive in the report. The consumer watchdog has also proclaimed its intention to crack down on business monopolies in Hong Kong. The council recently won the battle against the banks, getting the Government to partly dissolve the interest rate cartel. A lobby effort will be made to the General Chamber of Commerce which is distributing a copy of the report to its members. Mr Woods said the report has won some support in the stock exchange and the Securities and Futures Commission, the securities watchdog. It is understood that the exchange does not want to see any drastic changes in the system before 1997. 'My impression is that it lacks the political will to make any significant changes before 1997,' Mr Woods said. He contended that Hong Kong could not stay stagnant in the years leading up to 1997. Rather it should initiate necessary changes to ensure smooth transition. Nevertheless, changes seem to be coming slowly. The stock exchange reverses a earlier judgment and decides to re-open consultation on having a second-tier market and a trading-only board for regional securities, two ideas strongly advocated in the consultancy report. Even so, Mr Woods argued that the stock exchange was not the right body to run the second-tier market. A separate company will be better placed to provide some competition edges to the main market. The Corporate Finance Association, a body comprised of major merchant bankers, strongly resisted the idea of introducing profit record requirement for companies seeking a listing on the exchange. However, the requirements came into effect in October. The association stated, 'The exchange is a statutory monopoly and no other avenue exists in Hong Kong. 'The proposals close the public market to many smaller issuers in Hong Kong and leaves them no other alternative means of raising capital from domestic investors.' On the trading-only board, it is understood that the Corporate Finance Association was strongly supportive of the exchange providing a dealing mechanism for major regional counters. It reckons that a certain amount of trading already occurs through OTC in Hong Kong and many of the relevant intermediaries are based here. The association recommended in April this year that it would be easier to set up such a market if it were to be limited initially to institutions and high net worth individuals, who do not need the same levels of protection as real investors. However, he objected to introducing market-making system in Hong Kong, an idea the stock exchange likes. 'It is a step backward as most markets have moved away from the market-making system,' he said. A market-making system on an already liquid market would create an additional cost to investors. 'But if the market-makers are introduced to the second or third liners which are not liquid, that may have an advantage,' he said.
