The computer meltdown of the Hang Seng Index last Friday was a wake-up call for the government and Securities and Futures Commission.
A glitch meant Hang Seng Indexes, a Hang Seng Bank subsidiary that calculates the market's benchmarks, could not accurately calculate the blue-chip index or the China Hang Seng China Enterprises Index for half an hour.
Nor could the Hong Kong Exchanges and Clearing's trading system update indices for traders.
Fortunately, no major losses were reported from the breakdown. But the incident may well be a warning that regulators need to look at whether closer monitoring of the index compiler is required.
Hang Seng Indexes is not regulated by either the SFC or the HKEx, despite the important role it plays in the market. It has calculated the Hang Seng Index since 1969, during which time the index has become one of most widely recognised in the world. It also calculates other indices that trace the performance of China stocks and small companies.
The exchange pays a licence fee to use the index and to develop products such as Hang Seng Index futures. Investment bankers also pay the firm a fee that allows them to develop derivative products linked to the Hang Seng Index.
But the compiler itself does not need a licence from the SFC. Its parent Hang Seng Bank is regulated by the Hong Kong Monetary Authority but it is not a stock market regulator, and is unlikely to put much emphasis on surveillance of the index compiler.