Insiders will probably show a marked lack of enthusiasm for the expected budget proposal by Financial Secretary Donald Tsang Yam-kuen to demutualise and merge the stock and futures exchanges. They have had a comfortable time of it to date, more or less writing their own rules with 18 brokers among 31 members of the Stock Exchange council usually able to carry the day whenever a controversial change was in the offing.
But since the Asian financial crisis there has been a pressing need to bring Hong Kong's financial institutions into line with modernisation in other markets. Sweden and Australia are recent converts to the system. Elsewhere in Europe and the United States, mergers are changing the face of global trading.
There has always been a problem of potential conflict of interest here, with members regulating their own exchange. A merger means that ownership and management are separated. Coupled with the merging of the three clearing houses, the reforms will dramatically change the way the system operates. It offers many advantages to the local financial industry, and ultimately to members themselves. Since the Australian Stock Exchange changed in October, its share price has more than doubled from a A$4.10 issue price to A$11.88 last week.
The changeover is not without problems. The two exchanges use different computer trading systems, which will have to be made compatible. Members of the Futures Exchange are bound to feel they have been swallowed by a big brother. But those concerns are outweighed by the need to maintain Hong Kong's position as an international financial centre.
This is an inevitable step in the globalisation of trade. The New York Stock exchange is to extend trading in non-US shares from June. Hong Kong has little choice but to restructure, or to risk losing out as traders look abroad.
