Jake's View

Hong Kong stock exchange doing just fine without following stagnant Singapore or cowboy markets of New York

PUBLISHED : Monday, 05 September, 2016, 5:12pm
UPDATED : Monday, 05 September, 2016, 11:00pm

The Hong Kong stock exchange said it would explore ways to encourage start-ups and technology companies to raise capital in the city, conceding the need to tweak existing rules to compete with Singapore and New York to be the hub for initial public stock offerings.

SCMP, September 2

Our stock exchange has long been put under the control of our civil service, in case you didn’t know, and is therefore compelled to observe the rule that we must do whatever Singapore does. No, don’t ask me why. It’s the rule.

But it is an unfortunate one in this case. Turnover on Singapore’s stock exchange is less than a tenth of Hong Kong’s and steadily declining further. Do we really need to concern ourselves with this moribund market?

And as to New York, well, I’ve long had it up to here with New Yorkers preaching what they do not practice. We may have only sham democracy in our government, it’s true, but we have full democracy in our stock market – one share, one vote. They have long betrayed this principle in New York.

In fact, some years back we told the Noble House, a London-run, low-end consumer services company that got its start in drug trafficking and was once the corporate star of this town, that they could up stakes and go if they wanted but we were not going to grant family-tied shareholders special voting rights.

They upped stakes and went ... to Singapore, where the stock has languished. You’re welcome, Singapore.

It’s quite simple. The cabal of civil servants, shareholder stockbrokers and foreign investment bankers, which runs our stock exchange, sees no interests but its own in the exchange.

These interests are straightforward: Bang as many new issues into the exchange as you can because that’s where the fees are, hire clever lawyers and accountants to get you around the listing rules if there is any trouble and then move on to the next big thing and do it again.

And who is watching out for me and you, the people who buy this stock?

Let’s put it straight that the listing committee offers you no protection. Back in the good old days, exchange boss Ronald Li Fook-shiu did a superb job of shutting the big crooks out of the market but it cannot be done any longer. The listing committee is not permitted to make subjective judgment calls. It must operate purely by the rule book and the rule book is easily manipulated.

Nor will the Securities and Futures Commission do much for you. It is among the last to know in any scandal and, despite self-serving claims to the contrary, its rule does not run to the mainland, from where most of the new listings now come.

Investors in New York have some level of protection in that their laws allow them class action lawsuits (just add your name to the plaintiff list if you have the same complaint) and contingency fees (you only pay your lawyer if he wins the case).

But our most militant trade union, The Brotherhood of Solicitry, Barristry and Judiciary, is dead set against law reform in Hong Kong and thus legal redress is only available to you if you have millions to spend on it.

The fact is that you have only one real protection as an investor in the Hong Kong stock market. It is that you own the stock on the same terms as the controlling shareholder. If he robs the company he robs himself as much as he robs you.

This does indeed cost the new issue cabal business from time to time. Other exchanges, New York in particular, will happily dive for the bottom where standards are concerned and offer disproportionate rights to tycoons.

But when our cabal-run stock exchange then proposes doing so, too, which it does every few months, just remember that this does not help you, the investor, in any way and that you sell away your only worthwhile protection if you agree to it.

Preferential rights also undermine public trust in our stock exchange, its most valuable but fragile asset.

Only on an animal farm are some more equal than others.