It may have seemed unlikely, amid the pandemonium of the financial meltdown of 2008 and its ripple effects, that overregulation of markets in the United States and Europe may actually help Hong Kong place itself as a business-friendly derivatives hub. But, according to Professor Menachem Brenner, professor of finance at New York University, 'if a lot of the legislation proposed by Senator Christopher Dodd [on the US Senate Banking Committee] goes through, and if Europe demands hedge funds reveal their positions, Hong Kong has the chance to become a centre for derivatives trading'. Anecdotally, there has already been a large exodus of financial professionals seeking to relocate to Hong Kong from London and New York. But Water Cheung, managing partner at Wyndham Advisors, queries whether their experience is relevant. 'In many cases, they don't have Asian experience,' Cheung says. Despite believing Asia and Hong Kong 'have a surplus of [financial] talent', his attitude is laissez faire. 'Professionals like to go where the market is. We move around and I think it would benefit the economy because such individuals are high spending and that will help the local property market.' Similarly, Kalok Chan, head of the finance department at the Hong Kong University of Science and Technology business school, believes that since London and New York are the leading global financial centres, 'if Hong Kong wants to close the gap, it must bring in more trained financial professionals'. He reasons that since those two cities manufacture financial products, which Hong Kong and others merely 'import and distribute', that the former will have an advantage given the 'complexity and sophistication of their financial markets and products'. But Brenner is convinced that, given its location, Hong Kong can, 'at the very least', serve as a derivatives hub for the mainland, Singapore and the rest of Southeast Asia owing to regulations that are not 'overly restrictive'. 'If the US and Europe become too regulated, it's natural for business to move to where regulations are more accommodating and help business grow,' Brenner says. He contends many American regulatory proposals are 'unnecessary and counterproductive', and believes regulation is best when it helps markets function rather than hindering them. Although he lauds the lack of American regulation on hedge funds, he is worried about Europe where some regulators want hedge funds to reveal their trading strategies and positions. 'Hedge funds were not involved in the current financial crisis. If you were to tell them to put their centres in Hong Kong, I think they will come if Europe is overly harsh about transparency,' Brenner says. Chan believes it's too early to say whether Hong Kong will benefit from Europe and the US becoming overregulated. He doesn't believe Hong Kong should attempt to lure hedge funds and private equity firms by engaging in 'regulatory arbitrage' or by 'relaxing fundamental rules' as it is such standards that make Hong Kong respected in global capital markets. Chan is sceptical about whether Hong Kong can become the world's derivatives hub, but agrees it should 'increase its share of derivatives trading' without exploiting regulatory gaps. 'If we can bring over-the-counter derivatives into the system, they would help manage risk.' Cheung concedes that Hong Kong's trading volumes are 'peanuts compared to New York and London', stressing that 'Asian investors are the most daring in the world' and that should not be overlooked. Chan asserts global best practices should be adopted and thinks Hong Kong has room to catch up. Yet, commentators suggest there is too much emphasis on re-regulation in ways that are piecemeal and more concerned with structure than the quality of supervision. 'We need a regulatory framework with sound supervision,' Chan says. 'It's not just about what regulators should do, but market participants should not be content to conform by ticking boxes but must also appreciate the spirit behind regulations - in form and substance; the quality of people you have is crucial.' Locally, the Securities and Futures Commission allowed non-transparent sales of complex products in the Lehman Brothers case. Law and regulation also failed to obtain disclosure on the central purpose of transactions in terms of the abuse of derivatives in Italy, Norway, Singapore, Britain, the US and even Greece. However, Cheung thinks the city's Securities and Futures Ordinance is 'conceptually comprehensive', but more effort needs to be placed on enforcement rather than overhauling it.