The number of companies planning to list will plunge as a result of the government's plan for the Securities and Futures Commission (SFC) to become the front- line regulator for listed companies, directors and bankers say.
Stripping Hong Kong Exchanges and Clearing (HKEx) of its market watchdog role is aimed at improving corporate regulation and investors' rights but Hong Kong's investment banks are likely to be hit hard as tougher market standards deter firms from seeking listings.
The reform announced last Friday was based on the recommendations of an expert group chaired by Alan Cameron, which argued that HKEx faced unresolvable conflicts of interest as a for-profit organisation and market regulator. The about-face in government policy was executed as a direct result of the penny-stock fiasco in July last year, which highlighted confusion between the roles of the exchange and the SFC, a senior government source said.
Michael Sze, a vice-chairman of investment firm Baron Capital, said new listings would substantially decrease under the new system. 'The SFC is a regulator. When it becomes the gatekeeper to approve new listings, it is likely to adopt very high standards for the listing candidates. This will cut the number of new listings and hit the investment banking sector, which is struggling.'
Herbert Hui Ho-ming, a member of the government-appointed small- and medium-sized enterprises (SME) committee and deputy chairman of the Hong Kong Institute of Directors, warned that small firms could be locked out.
'SMEs are cornerstones of Hong Kong's economy and it is the government's policy to assist their development. Therefore, it would be a mistake to ignore their development or to make it very difficult to list,' Mr Hui said.
He said small companies should have representatives on the proposed listing panel, which will monitor the Hong Kong Listing Authority, under SFC control. 'The SFC should hire those with business experience, including experience in small firms to handle listing regulation,' he said.