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SCMP Reporter

THE Stock Exchange of Hong Kong (SEHK) may lose its exclusive right to operate securities exchanges in the territory if new legislation proposed by the Securities and Futures Commission (SFC) is passed.

  The planned amendments to the SFC's operating ordinances would pave the way for other financial securities and regional stocks to be publicly listed in the territory outside the control of the SEHK.

  Randy Gilmore, deputy chairman of the SFC, told Sunday Money the proposals would allow the SFC to licence alternative exchanges to trade in securities, which it was unable to do under existing laws.

  But the main operations of the existing exchange are not under threat.

  The proposed legislation includes a guarantee the SEHK's exclusive right to operate an exchange in main-board Hong Kong stocks will remain intact, Mr Gilmore said.

  Susan Selwyn, former deputy chief executive of the SEHK and a director of the International Securities Institute, which has been severely critical of the stock exchange's monopoly, said the proposals from the SFC were 'extremely good news'.

  She said they could lead to a second board in local stocks and derivative products outside SEHK control.

  By allowing the SFC to licence alternative products traded in Hong Kong, the effective monopoly of the SEHK to hinder the development of new financial products would be lifted, she said.

  She added she was not surprised the planned legislation maintained the SEHK's monopoly as the local exchange for Hong Kong stocks.

  The SFC has sent a draft proposal to the Financial Services branch which it hopes will form the basis of a government discussion document later this year.

  The shake-up is the result of the SFC's 11 operating ordinances being consolidated into a single body of legislation.

  The planned amendments would open the way for new financial products to be traded in Hong Kong, but Mr Gilmore would not speculate on what form these might take.

  The stock exchange unification ordinance now gives the SEHK legal authority to run an exchange in financial securities, with a handful of specified exceptions.

  The government discussion document is expected during the third quarter of this year and is likely to be followed by a long period of public consultation.

  The consolidation of the SFC's ordinances has been underway since 1988.

  Mr Gilmore said the proposed streamlining was modernising the anachronistic legal framework in which the SFC operated.

  This week the SEHK will reportedly announce plans for its own second board and an auto-matching system.

  If correct, this would represent a dramatic U-turn for the stock exchange after members rejected calls for a second board in The Way Forward , a blueprint published last year.

  The SFC has been at loggerheads with the SEHK over what it sees as obstinacy by the exchange's smaller brokers in hindering market developments such as new products and trading systems which are not in their interest.

  But senior industry figures have expressed surprise that the proposed legislation has already been passed to the Financial Services branch.

  The head of one professional body which sits on government working groups with close ties to the finance industry said he had no idea the process was so advanced.

  Mr Gilmore said the market would have plenty of opportunity to discuss the proposals when they were published.

  The chance of the SFC receiving extended licensing powers for exchanges in new financial products was described by one senior figure as the 'nuclear deterrent' to ensure the SEHK continued its process of reform.



Exchange monopoly threatened