Hong Kong company reporting season

Lawmaker warns of ‘broken rice bowls’ if turf war between HKEX and SFC continues

Exchange operator reveals 38pc fall in quarterly profit and chairman Chow Chung-kong plays down ongoing spat between regulators

PUBLISHED : Wednesday, 10 August, 2016, 2:28pm
UPDATED : Wednesday, 10 August, 2016, 11:17pm

Stockbrokers fear the ongoing turf war between the two regulators in Hong Kong may result in broken rice bowls as a result of fewer listings in the city after the exchange operator reported a 38 per cent fall in second-quarter profits on Wednesday.

Revealing its latest trading figures, which have been hurt by fewer listings and falling turnover, Hong Kong Exchanges and Clearing chairman Chow Chung-kong tried to play down the bourse’s conflict with the Securities and Futures Commission.

The two regulators have been at loggerheads after they announced a three-month consultation on listing reforms, which would allow the SFC to be involved in new listing approvals and listing policies at an earlier stage.

Turf war over Hong Kong’s stock market regulation: watchdog chief attacks critics of reform

In his results statement on Wednesday, however, Chow said: “At HKEX, we will continue to work with the SFC on our joint market consultation, which will close in September, in relation to the exchange’s decision-making and governance structure for listing regulation, with an aim of ensuring that the structure addresses market development and meets future regulatory needs efficiently and effectively.”

At the post-results briefing on the same day, HKEX chief executive Charles Li Xiaojia declined to comment on the reforms.

“The consultation is still going on. This is not the right time to comment. There are different views from different stakeholders. We will invite people to make comments and consider the views collected from the consultation to improve the quality of the market,” Li said.

But Christopher Cheung Wah-fung, the incumbent lawmaker representing stockbrokers and who is seeking re-election, again underlined his opposition to the reforms, saying they might lead to a significant drop in initial public offerings in Hong Kong.

“If the securities sector believes the proposed listing reforms will kill off the listing market, I would definitely oppose it,” Cheung said.

“The Hong Kong stock market had seen a low turnover and few listings in the first half. Many brokers are worried their rice bowls may be broken with a quiet market.”

HKEX, best known for stock trading, eyes a role in currency market

Cheung said the SFC and HKEX should end their row and work together to enhance market turnover.

Profits at HKEX dropped 38 per cent in the second quarter to HK$1.55 billion from a year earlier after market turnover slumped 46 per cent in the first half.

As the war of words between the two sides continued in recent months, HKEX director Vincent Lee and Chamber of Hong Kong Listed Companies vice-chairman Lo Ka-shui have also separately publicly slammed the reforms.

HKEX profit drops more than expected

Lo said the move would result in over-regulation and “may kill off the initial public offering market”.

Brokers said that if this happened, it was set to erode the exchange’s listing fee income further.

SFC chief executive Ashley Alder last Thursday publicly rejected such concerns, saying the criticism was “based on a flawed understanding of the proposals”.

There were 40 new listings in the first half of this year, a decrease of 22 per cent from a year earlier.

Chow said the result reflected the market volatility.

“The global financial markets witnessed heightened volatility in the first half of the year arising from the increasing concerns over a slowing global economy and the wider divergence in monetary policies among major central banks,” he said. “Considerable uncertainty surrounding [Brexit] also intensified market volatility and dampened activity.”