THE pricing of new listings on the Hongkong stock exchange should be left to merchant bankers and controlling shareholders, says chief executive Paul Chow. Speaking in the wake of the launch of two investigations into new-listing subscription procedures, Mr Chow said market forces should be allowed to work. The investigations were triggered by the 659-times subscription of Denway Investment, which absorbed $420 billion of funds last week. ''Regulators should not determine the price of new listings or the mechanism by which a listing takes place,'' said Mr Chow. ''These issues are really a matter for the underwriters and shareholders of the listing company to agree and it is not something in which the regulators should interfere.'' He said the exchange acted to make sure investors were being made aware of the risks. ''I do not believe you should regulate something that is effectively a commercial decision,'' Mr Chow said. Mr Chow said the exchange was investigating the Sino-Hongkong oversubscription phenomenon with the Securities and Futures Commission (SFC). The results would be known by the time China enterprise listings went ahead. If there was a problem, said Mr Chow, it was with the banks. ''Can they really say that this level of lending is within their normal working practices?'' he said. Mr Chow said he expected the final draft of the Sino-Hongkong Memorandum of Understanding would be completed this week and that a signing ceremony might take place in April, barring unforeseen circumstances. The first listing is not expected until June. Mr Chow said a period of challenges lay ahead for the exchange. The exchange is delaying implementation of automated trading until software to back up the new system is fully operational. Implementation might be in the summer, at which time a form of regulated short-selling would be allowed. Negotiations were taking place with the relevant authorities to allow a stamp-duty-free period over nine to 12 months. This was also expected to apply to stock-borrowing and lending. During the year capital adequacy and codes of business conduct would be introduced. On trading, Mr Chow said: ''In order to allow Hongkong to compete as a market we have to continually develop the market infrastructure with more efficient trading to cut costs and more variety in products.'' For this reason the exchange was working on the introduction of options on stocks, which was due to come in early next year. The exchange needed to remain competitive at all times to head off threats to its control over Hongkong stock trading. Two major threats to Hongkong were posed by the growth in American depository receipt trading, coupled with the introduction of London's own auto-matching trading system in 1994. The Hongkong exchange, with the SFC, was campaigning for a reduction and eventual abolition of the domestic stamp duty tax on share trading. London's stamp duty is due for removal this year.
