New market for dual-class shares garners momentum after watered down listing reforms

PUBLISHED : Friday, 15 September, 2017, 9:59pm
UPDATED : Friday, 15 September, 2017, 11:24pm

The government, along with HKEX and the SFC, say they will work together to make the city more attractive as a listing destination for new economy companies, adding momentum to the proposed new stock market for dual class shares after regulators embraced a water down version of listing reforms on Friday, confirming a South China Morning Post report on Thursday.

“The listing reform should not be seen as a power struggle between the SFC and HKEX. The two regulators and the government all want to work together to upgrade the quality of Hong Kong markets and to see that the market operates more efficiently,” said James Lau, Secretary for Financial Services and the Treasury.

As part of the listing reform package, the Securities and Futures Commission agreed to abandon its controversial proposal last year for a frontline role in approving new listings.

The central listing approval process will remain in the hands of HKEX and its listing committee.

The SFC also agreed to abandon a proposal to review the performance of listing division staff. The responsibility will instead remain part of the purview of HKEX executives.

“It is not a climb down which is a wrong way to describe the conclusion. We are listening to comments and consider the current approach more effective,” said Carlson Tong Ka-shing, chairman of the SFC.

“The conclusion will clarify the roles of SFC and HKEX in vetting new listings. Many problems happen after companies get listed. This is why post-listing enforcement is important,” said Charles Li Xiaojia, chief executive of the HKEX.

Securities watchdog’s retreat on new share listings paves way for dual-class shares

The SFC will retain its role in setting listing policies, while a 12 member advisory panel will support the listing committee in setting policy.

“The government and the SFC and the stock exchange are open minded to carefully study how to carry out reforms to make sure our market could attract new economies to list here while at the same time we protect the interest of investors,” Lau said.

The water downed listing reforms come after a five-month controversial consultation last year, which received 8,500 submissions from brokers, listed companies and financial professionals. Ninety-four per cent of respondents were against the proposed reforms.

Brokers said the listing reform result was a blow to the SFC and a victory for the HKEX and would likely help pave way for the launch of a third board supporting dual class shares.

In 2015 the HKEX pushed for a consultation process on whether to launch dual class shares in Hong Kong but the plan was scrapped due to objections of the SFC.

In August the HKEX completed a two month consultation on the proposal.

The third board was among the top agenda items at an inaugural meeting of financial heavyweights initiated by Chief Executive Carrie Lam Cheng Yuet-ngor in August, signalling the government’s determination to reform the city’s capital markets to attract more technology firms.

Both Facebook and Google are listed in the US under a dual class share structure.

Debate over the dual share concept thrust into the spotlight in 2014 when Chinese e-commerce juggernaut Alibaba Group, which has a dual-class structure, opted to list its shares in New York in what became the largest IPO in history.

A dual-class stock structure allows the issuing of various types of shares by a single company, where the different classes have distinct voting rights and dividend payments.

Alibaba is the owner of the South China Morning Post.