Cometh the moment, cometh the man. It looks to have taken an outsider to convince the government of the burning need to radically reform Hong Kong's stock market regulatory system. Making the Securities and Futures Commission the frontline regulator of listed firms represents one of the boldest decisions of this government. It threatens deep-set vested interests and promises real results. This newspaper wholeheartedly endorses such an uncharacteristic display of backbone.
Modernisers have long advocated reform of Hong Kong's company listing process. Officials have privately conceded the merit of putting the exchange's gate keeping and policy making role in the hands of an independent body. The penny stock incident highlighted gross deficiencies in a market trading system pre-programmed to reward rule-breaking. Yet, it had seemed that a visceral resistance to change and the interests of established market players would kill efforts at meaningful reform.
Alan Cameron, the Australian hired to head a panel recommending change, deserves credit for presenting a warts-and-all report. That the government so quickly endorsed the findings reflects a changed approach to market regulation. Thankfully, it shows a willingness to take tough decisions when evidence of a clear and present danger to Hong Kong's long-term economic viability is presented.
With the benefit of hindsight, this reform will inevitably appear part of a consistent pattern that began with the mid-1980s consolidation of Hong Kong's stock exchanges, the creation of the SFC and the 1999 shotgun marriage and demutualisation of the stock and futures exchanges.
That, however, would be too simple. It would have been very easy to maintain the muddle of a system, where the for-profit exchange maintained its obviously compromised watchdog role over companies.
By instead choosing to embrace international best practice, the groundwork for a radically different market has been laid. Tighter entry requirements should over time weed out the dross companies that are little more than personal enrichment vehicles for major shareholders. Recent years have seen a dramatic worsening of the quality of firms coming to market and this move should arrest the rot.
