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SCMP Reporter

HERBERT Hui Ho-ming sometimes feels like meat in a sandwich. If some say it is probably ham, that is because he has been known to play to the press gallery. But as head of the stock exchange's listing division, Mr Hui knows headlines do not always flatter.

   All cuttings are taped to the filing cabinets in the division's crowded headquarters in Hutchison House - those critical with those in praise.

   There is pressure on the exchange coming from those who feel its officers have not done enough to ensure that only squeaky-clean companies come to the market, and those who feel the rules are being applied with too much zeal.

   Recently, criticism has been aimed at the division over the discovery that a handful of Hong Kong companies had directors with criminal records, which raised questions about the validity of prospectuses.

   Then a survey showed that professional advisers and issuers of shares had reservations about the consistency of interpretations of listing rules, and about efficiency in the processing of listing applications.

  It also revealed that about one quarter were dissatisfied with the effectiveness of the exchange in dealing with issues relating to their professions.

   For the men and women who run the listing division, this seemed poor reward for their work to raise the standards of companies coming to the stock market, to enforce the rules on those already there, and to establish the market as a leader in the region.

   Privately, Mr Hui feels some of the attacks made on his division have been triggered by animosity over its diligence in pursuing those who have broken the rules.

  As a non-statutory body, the stock exchange cannot hand out fines, or push for prison sentences. But it can and does censure directors, in the expectation that directors criticised will have to answer to shareholders.

   Mr Hui is happy with the weapon, and does not want a lot of rigid regulations which ultimately would restrict the division's freedom of action and distance it from the marketplace.

   But censures come only after the facts have been revealed. Critics ask why the listing mechanism did not reveal rule breaches in the first instance.

   Mr Hui says the listing division is not the Federal Bureau of Investigation and to suggest it should check and verify every fact in a prospectus, and delve into the backgrounds of every director, is to misunderstand its role.

  'We are not an investigatory body. We work with the market to ensure that certain listing rules, which are a contractual relationship, are adhered to. This is not passing the buck, but the fact is we work on an honour system.

    'We are talking about each listing applicant, having maybe eight or 10 directors, and last year 60 companies came to the market.

  'We have to depend on directors being honest about answering questions being put to them. If they turn out not to be honest, we must be seen to be going over [them] vigorously and getting to the bottom of an issue, so that no one can get away with it.

   'The market has to understand that you can't put the onus on the merchant bankers or lawyers either.

  'How detailed can the research be into an individual who might have a career going back 30 years? Is it practical to blame the merchant banks or the lawyers?'     What has followed from revelations about some directors' hidden pasts is the consideration that a new form should be issued which every director in town should sign, stating on oath they have no undeclared convictions.

  Some say the exercise could backfire by giving the impression that the cupboards of Hong Kong companies are rattling with skeletons.

  'Some people say it's overkill, but some fund managers say it's overdue. Some shareholders say it's a step in the right direction. We are getting a balanced view,' Mr Hui said.

   'The survey will be completed by end-July, and we are getting very definite responses. It is a very emotive issue but it is generating the right publicity. We are taking a stand and people are reacting to it.'    Taking a stand is what Mr Hui sees as one of the duties of the listing division, and if that means that he, and his team, have to take flak from some quarters, so be it.

   'Two years ago when we embarked on corporate governance there were few if any institutions talking about it. At the time the listing committee was conscious that it might open wounds,' he said.

  'Once you increase transparency, people are bound to be more attentive to people who don't reach that standard.

  'Rather than chickening out and saying 'let's keep a lid on everything', the division took the high road, which was to let the chips fall where they may. We have to do the right thing.

  'There may be cases coming out which may be a little embarrassing for Hong Kong, but the reward for that is that we have a very clear message, which is: we will not tolerate any lowering of standards.'    Mr Hui rebuffs the charge that maintaining its own standards means it makes life too hard for companies to get a stock market listing. 'The big issue is the quality of the company. Some of them are of very high quality and you know they would have addressed a lot of issues before coming to us,' he said.

  'Others are more difficult. That is nothing to do with the merchant bank, but the odds are that sometimes you hit one with some problems.

  'Increasingly, you get marginal cases. That's why we came up with the profit test late last year. That kills the uncertainty of whether a company makes the grade or not.'    His answer to the view that the listing division is getting too far removed from the real needs of Hong Kong is the role of the Listing Committee.

  This is composed of 25 practitioners from all sectors of the financial services industry, headed by chairman Dr K S Lo, which has oversight on the division's operations.

  It is, he stresses, far from a rubber stamp for his division.

   Dr Lo knows the market does not view the division with unalloyed favour, but supports its role. 'If everybody liked what it is doing I would be worried,' he said.

   Those who come down hard on the way the division is run might compare the present situation with that prevailing before the crash of 1987, the closing of the market, and the consequent uncovering of corruption, including price-fixing for new listings, which led to former stock exchange chairman Ronald Li spending time in Stanley Prison.

   From that came the milestone 1988 report by Ian Hay Davison, which recommended a massive shake-up of the market.

   Pricing now is very much left to the market. The listing division's job is to give investors information they need to make decisions. If these turn out to be wrong - and many new issues have underperformed the market badly - that is not an occasion for listing division action, says Mr Hui, as long as all the facts were put before investors.

   He sees the overall role of the division as helping to take the stock exchange into the next century.

   'After the events of the past two years we are extremely confident about our future. We have laid the seeds for a very clear and transparent system for listed companies. We are quite a long way ahead of other exchanges in this region.' 



Hui stands proud on standards