Money Matters

Alphabet soup hides the ‘political connection’ in Hong Kong stock exchange’s listing reforms

Policymakers have taken heed of the 2003 fiasco and are treading cautiously by seeking compromise

PUBLISHED : Friday, 17 June, 2016, 11:03pm
UPDATED : Friday, 17 June, 2016, 11:03pm

The Securities and Futures Commission will not take away the power to approve listings from the Hong Kong stock exchange. It would be far too political.

Instead, we have an alphabet soup that masks a new deal that allows the commission an earlier exercise of a final say that it already has. That makes political sense.

The government is understood to be deeply dismayed by the circus around listed shells and their roller-coaster prices. It is hurting the city’s reputation.

Yet, uprooting the exchange’s approval power is not something anyone would dare do, especially with the Chief Executive’s election coming up in September 2017.

HKEX, SFC propose overhaul of stock market listing regime

Financial Secretary John Tsang Chun-wah is one of the aspirants for the top job. All his well-timed small talk of Hong Kong’s football team and any other thing that touches the heart of Hongkongers are telling.

But changing the listing regulatory regime can also be deadly. Policymakers have obviously not forgotten the fiasco in 2003 and the scars it left in its wake.

At that time, a government-appointed expert group suggested moving the power to the commission. Tsang’s predecessor, Antony Leung Kam-chung, issued his endorsement within minutes of its announcement.

Charles Lee, the then exchange chairman and a political heavyweight, called a press conference, and threatened to resign if the government went ahead with its planse.

Chief Executive Tung Chee-hwa, who was voted into the city’s top job by dozens of Lee allies, intervened. Leung took back his endorsement within a week.

Lee has long gone but the business clout behind him has not. The latter have spent decades building their men and women into the system.

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They won’t hesitate to humiliate anyone who dares to uproot the existing regulatory regime. Loss of the vote is the last thing any potential candidate wants at a critical moment.

Besides, a major overhaul would change the three-tier regulatory system that has in a way shielded the government from taking responsibility for wrong decisions. Who in a lame-duck government would do that?

Not surprisingly, there has been no independent review till now.

Only the exchange and the commission were at the negotiation table to sort things out. The form decided the substance. It is called an “enhancement”, not a reform.

Therefore, “efficiency” instead of “quality” became the most mentioned word in yesterday’s conference by both sides.

Things were proposed to improve the efficiency, not to upgrade the quality of listed companies.

Instead of an overhaul, two super bodies would be formed above the Listing Committee to allow the commission an early involvement in listing decisions and policy formulation and exercise of its veto power.

A good example is one of the super bodies named the Listing Regulatory Committee that would rule on controversial listing applications.

It would have an equal number of commission executives and market practitioners. However, since one of the lay members would be the chairman who cannot vote in the event of a tie, the commission has a final say.

At the same time, several “ugly” features have to be removed to mitigate the exchange’s conflict of interest as both the coach and the player. There is not much substance though.

Under the proposal, the bourse’s chief executive no longer sits on the Listing Committee that decides if one can list, though he cannot vote.

The Listing Department which does the frontline vetting and policy formation would no longer report to the board; but to a nine-member Listing Policy Committee which would have three commission representatives.

The remuneration of the department’s senior executive would be decided by the board with reference to this committee’s opinion.

However, the fact remains that David Graham – who heads the department – has a third of his annual pay tied to share options and therefore the exchange’s bottom line.

It would be interesting to see how the pay base will be changed and whether anyone would take up the job if so.

Every party is jostling for space within a very small space. When politics gets in first, there is not much choice.