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The SFC and HKEX are studying the comments from the consultation before making final decision on the reforms. Photo: AP

Money and power struggle behind listing reform deadlock

The tug of war between the supporters and opponents of the controversial proposals to put more listing power into the hands of the SFC shows no sign of abating


Hong Kong’s little success in introducing listing reforms over the years is an age-old story of money and power struggles.

Once again, the latest listing reform proposals were overwhelmingly rejected by the majority of respondents to a consultation paper, as many were worried that the changes arming the Securities and Futures Commission with more power, could kill the city’s multibillion dollar initial public offering market.

The proposals issued in a joint consultation paper in June last year by the SFC and the Hong Kong stock exchange, would allow the SFC to take a bigger role in the early stages of listing matters.

Central to the reforms is the establishment of two new committees - a listing regulatory committee and a listing policy committee - with equal representation from the SFC and HKEX. The regulatory committee will handle applications deemed complicated by the exchange’s listing division. The second panel will decide on policies.

The new structure will replace the current system in which the SFC can only reject the policies or listing approvals made by the stock exchange and the 28-member listing committee that comprises representatives of listed companies, bankers, brokers, lawyers and accountants.

The controversial proposals which underwent consultation from June to November, would have been difficult to proceed. A staggering 94 per cent of respondents - or 8,000 out of the 8,500 submissions received - said no to reforms, with listed companies, brokers and lawyers being the biggest opposers while support came from accountants and fund managers.

Uncannily, the supporters and opponents use a football analogy to describe the SFC’s role in the reforms.

“The SFC now acts only as a goalkeeper in a match. The proposed changes will allow it to play the roles of a defender and midfielder while the HKEX will remain as the striker,” Securities and Futures Commission chairman Carlson Tong Ka-shing told the South China Morning Post in an interview last June to explain the benefits of the reforms.

Support also came from former government senior officials such as former Secretary for Financial Services and the Treasury Frederick Ma Si-hang, who believes the change would enhance market quality.

The opposing forces on the other hand, have a different version of the analogy.

“The SFC is now playing the role of a defender, but the proposed reform will turn the agency into a striker, which gives it too much power,” said Jeffrey Lam Kin-fung, the vice-chairman of the pro-business Business and Professionals Alliance for Hong Kong and a reform opponent.

Lam, along with brokers, listed companies and lawyers feared that the SFC will replace the Hong Kong Exchanges and Clearing as the frontline regulators to approve new listings and setlisting matters.

“The SFC may bring in tougher regulations which may incite risks of over-regulation and make it harder for local small and medium-sized companies to raise funds,” Lam said.

Lo Ka-shui, vice chairman of the Chamber of Hong Kong Listed Companies who had publicly slammed the proposals for giving too much power to the SFC, warned that the reforms may kill off the listing market.

“Look at the real estate investment trust market, which is solely regulated by the SFC. It is dead,” Lo pointed out. “If the SFC was the one to approve new listing, the IPO market will be dead too.”

The IPO market involves huge sums of money and million-dollar earnings for financial and professional services intermediaries, which makes any reforms over listing matters controversial.

Over the past 20 years, Hong Kong has ranked number two in the global IPO market - 1,172 companies have raised a total of US$388 billion between 1997 and the first quarter of 2017. It tailed New York’s US$675.8 billion, but surpassed Nasdaq, London and Shanghai, which raised US$339.3 billion, US$292.7 billion and US$235.1 billion respectively, according to Thomson Reuters data.

“It’s true that the IPOs are bringing in huge sums of money to the various sectors. This is why many listed companies and some brokers are opposed to the proposed reform,” said Albert Au Siu-cheung, senior adviser of accounting firm BDO and a director of the SFC.

Au rejected the idea that the reforms will kill the IPO market, calling it “irrational”.

“The proposed reforms are aimed at enhancing market quality as we have seen some new listings performed poorly. Only if we improved the market quality, we can then attract more good quality companies to list and investors to trade here,” he said, adding that this was why many accountants and fund managers have supported the reforms

Christopher Cheung Wah-fung, lawmaker for the financial services sector, urged the SFC to listen to the various voices from the consultation.

“I believe the reforms would become acceptable if the SFC would modify them. While many brokers are opposed to the provisions for the SFC to be involved in approving new listings. But there are many proponents for the SFC to discuss with the HKEX about setting listing policies at the early stage, instead of just rejecting what the HKEX proposed,” Cheung said.

A case in point, Cheung said that the HKEX could rope in the SFC, government officials and brokers to discuss the setting up the third board and the policies to attract technology and new economy firms to list in Hong Kong.

The SFC and HKEX last month told lawmakers that they were still studying the comments before making final decision on the reforms.