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SCMP Reporter

HONGKONG stock market regulation has come upon something of a hiatus.

  Regulators are breathing a sigh of relief, having got the first of the China Nine off the blocks and listed on the stock exchange.

 But there remain quite a number of hurdles, the resolution of which have been promised by the end of the year.

  These are linked to automated trading and stock options trading, and a series of associated refinements to stock lending and borrowing and the introduction of regulated short selling.

  Yet, as fast as the regulators run to get these issues resolved, it is apparent there is a new agenda surfacing that goes to the heart of what the Hongkong stock market is all about - and what role it should play in the future.

  It is four years and two months since the Securities and Futures Commission came into being.

  Out of the coals of the famous but fast being forgotten Ian Hay Davison Report, the SFC was forged to meet the needs identified by the report after the 1987 October crash. The stock market had only just been unified, in 1986.

  From May 1989 onward, in conjunction with the stock exchange, the SFC undertook reviews and then overhauled just about every rule pertaining to securities regulation including listing, buy-backs, settlement, mergers, insider dealing and disclosure - to name just a few.

  The debate about over-regulation, led by Jardine Matheson, came and went along with the pitched battle between the SFC and exchange members over reform of the exchange and wider representation on its policy-making council.

  The SFC and the exchange then declared peace and signed a memorandum of understanding which removed areas of duplication and freed up the exchange to get on with front-line regulation without having the chief watchdog breathing down its neck.

  Floor trading in Hongkong joined the 20th century with the implementation of recommendations to install a central clearing system under which market risk was fully centralised.

  The China study group was set up to pave the way for new rule amendments enabling mainland enterprises to list in the territory.

  Facing the future, Hongkong needs to cut the cost of dealing stocks.

  The removal of stamp duty would help the market to fend off challenges for supremacy in the trading of key blue-chips.

  It already has lost the supremacy battle in trading Hongkong Telecom, as most of the territory's second largest stock by market capitalisation are now traded in New York and London.

  Automated trading needs to be implemented and the regulators are working on obtaining a de-bugged trading system to launch.

  With automated trading in place, short-selling can proceed - making stock lending and borrowing more viable.

  However, the excitement and debate that these topics used to engender has evaporated.

  There are many bigger issues that occupy the attention of the securities industry, with China being the largest.

  People now appear to be focusing on what role the exchange will play in the future.

  The past four years and two months have seen corrective action being taken to resolve the problems of the past, with the SFC as the guide.

  Future development is really up to the market, with the SFC there to ensure that whatever is introduced fits into the regulatory framework.

  The needs of China and the continued internationalisation, (although globalisation now seems to be the in word), of equity currently dominate the agenda for the future.

  The controversy surrounding some of the local problems linked to the Shanghai Petrochemical offer brought into sharp focus the growing debate about the role of the stock market in the Special Administrative Region after June 30, 1997.

  Judging by the opinions of US investment banks, there appears no end to the possibilities available - including global issues, debt issues, new derivative products and product development as a whole.

  However, there appear to be few initiatives coming out of the local securities industry at the present.

  Is the Hongkong stock market about to let the US investment banks lead the way? 



Fresh ideas needed on future regulation