Hong Kong Exchanges and Clearing is considering transferring its listing division to a new subsidiary to reduce criticism of its conflicted role as regulator and profit-making company. The HKEx board recently discussed whether it should follow the Australian example and set up a subsidiary to carry out its listing role, sources told the South China Morning Post. The proposed subsidiary would have a separate board to manage staff involved in approval of new listings and regulation of listed companies. Under the present structure, staff of HKEx's internal listing division handle listing approval and regulatory functions, with all reporting to chief executive Kwong Ki-chi. The proposed system would allow listing staff to work more independently. Numerous rules and institutional arrangements were put in place to negate any conflicts of interest in HKEx's regulatory role when the stock and futures exchanges were demutualised, merged and listed nearly three years ago. But criticism has continued to dog the company. An HKEx director stressed that the exchange was only at the stage of studying the subsidiary proposal and the board had not endorsed it. 'I would say it is something we are looking at but there is no confirmation if the exchange would go ahead with such a plan,' he said. However, sources said HKEx had mentioned the proposal in its submission to the government-appointed three-member panel that is reviewing Hong Kong's three-tiered regulatory system. The government last month appointed the panel to study listing regulations under the three-tiered system. One of its major areas of focus is whether HKEx should continue as the regulator. An HKEx spokesman confirmed the exchange had made a submission to the panel but refused to give any details. The Democratic Party rejected the subsidiary proposal, saying it would not solve the conflict of interest in HKEx's regulatory role. Democratic Party economic affairs spokesman Sin Chung-kai said: 'Even if the HKEx sets up a subsidiary, it would still be run under the same roof as the exchange and it will only act in the interests of the shareholders of the HKEx. How can a two-dollar company solve the conflict?' He said the exchange, as a listed company, should not regulate other listed companies. 'Since the exchange has become a listed company itself, it is under pressure to have the maximum number of companies listed. This has led it to adopt policies that sacrifice the quality of companies,' Mr Sin said. He said the exchange should give up regulatory work completely and pass these responsibilities to the Securities and Futures Commission. Sources said the HKEx board still believed the exchange, rather than the SFC, should be the front- line regulator because it was closer to the market. Rule-making would be more difficult under the SFC as all the commission's regulations needed to be agreed by legislators. HKEx was willing to study various options, the sources said. An HKEx director said: 'The exchange is willing to accept market comment. As they considered we should avoid conflicts of interest, we should also study ways to address their concerns.'