If the concept of a free market sits awkwardly with the reality of a new joint stock and futures exchange that has eight government-appointed directors plus a former policy secretary as chief executive, it does at least pave the way for much needed reforms.
To maintain its place as a major financial centre, Hong Kong has to stay up to speed with Internet trading, straight-through processing and other revolutionary changes which are shaking up the world markets.
There was lukewarm enthusiasm for modernising moves from the brokers who used to run the exchanges as their own clubs. Too many vested interests were involved. Now that these have been overcome by the $3 million-plus windfall each broker will collect through the formation of the Hong Kong Exchanges and Clearing (HKEx), the new entity will be better geared to adapt to the challenges of the technological revolution and increased global competition.
Financial Secretary Donald Tsang Yam-kuen made no secret of his determination to introduce tighter regulatory processes and more transparency to the system. But the counterweight to these necessary improvements is heavy government involvement. That may be unavoidable at the start of the HKEx. However, it is something that should be reviewed over time so that the HKEx will be seen to be independent of the administration.
The first task for the HKEx and its chief executive Kwong Ki-chi is to ensure the exchanges operate in a fair and credible manner and are properly policed. It should try to address public concern over several recent decisions by the listing committee of the Growth Enterprise Market allowing several Internet startups to be exempt from rules on options, share issues and a moratorium for a sell-off by management shareholders. Rightly or wrongly, these waivers have fuelled charges that the companies concerned were given favours because of the background of their supporters.
The HKEx's next task must be to tackle competition from other markets. One reform still awaited is the abolition of the fixed commission system that inhibits competition. Brokers now get round this problem by a convoluted process of rebates, making a nonsense of the regulations. The restrictions do not apply in other markets, notably the US and UK, and could be done away with here.