CHANGING the guard at the Stock Exchange of Hong Kong and the Securities and Futures Commission comes at a crucial time in the territory's development. With the 1997 changeover less than three years away, the heads of the two most senior market watchdogs must guide the markets through the transition to Chinese rule without damaging that most important but fragile of financial commodities: credibility. True, all is not perfect at the Hong Kong bourse. There are crooks, cheats and dodgy deals. But that doesn't make it unique among the world's markets. Our bourse is the same as any other - only more so. But while some have chosen to see the increased regulatory activity of the exchange and the SFC as a damning condemnation of laissez-faire Hong Kong, it is, of course, quite the opposite. More effective regulation means more crooks are caught, and in mature markets, crime does not pay. Hong Kong's white collar criminals are starting to realise that. The rapid and courageous response to the crippling effects of Ronald Li and his cronies, and the high-profile fraud cases brought by the SFC of late, builds credibility both at home and abroad. It is essential this is kept intact. Dr Edgar Cheng Wai-kin is tipped to be the new chairman of the exchange. If, like his predecessor, he stays for the maximum three-year term he will oversee the return of Hong Kong to China. Although his is not an executive position, it is of key importance both to the exchange and the broader financial community. The good doctor is, however, in an enviable position. There is not much wrong with his patient. If he is appointed as chairman, his responsibility will not be diagnosis and cure, but the continuation of existing treatment. There are bound to be a few complications in the transition period and then more than ever the cool hand of a skilled surgeon will be needed. The exchange does not need a witch doctor, a soothsayer, a fung shui man or a messiah. It needs quiet dedication, a calming bedside manner and, if needed, a sharp scalpel. If he has to operate, Mr Cheng must do so neatly, quickly and effectively. The cancer of corruption must be cut out. To a large extent these sentiments are mirrored at the SFC, perhaps magnified. As the territory's number one regulator it will be at the cutting edge of maintaining the territory's status and promoting overseas confidence. Both houses must guard against localisation for localisation's sake. And any hint of impropriety must - in the words of J. Edgar Hoover - be eradicated with ''maximum prejudice''. Cover-ups provide prevention, not cure. Just ask the ICAC. And if the new leaders of the exchange and the SFC face a new and, as yet, unknown disease, it must be studied and researched and, if necessary, an innovative and radical treatment must be applied. Hong Kong is not known for being conventional, but these are not going to be conventional times.