Hong Kong’s market regulator must take a tough stance on new listings to ensure quality
The Securities and Futures Commission has dropped a reform plan that would have given it more say over new share listings, but its recent tough actions against some companies show that it remains committed to quality
Hong Kong’s Securities and Futures Commission may not be happy abandoning the controversial reform of the listings structure, but the regulator has been using other methods to upgrade the quality of the market.
From the actions taken by the SFC in recent months to crack down on some problematic new listing applications, we can see that it is working to strengthen the quality of the market, something that is of utmost importance.
Confirming a South China Morning Post report, the SFC, the government and bourse operator Hong Kong Exchanges and Clearing recently announced that the SFC had agreed to abandon a controversial proposal made last year for it to take a frontline role in approving new listings. This process will remain in the hands of Hong Kong Exchanges and Clearing and its listing committee.
The SFC also agreed to drop a proposal to review the performance of listing division staff. The SFC however will retain a role in helping to set listing policies, as it will have representatives in a new 12-member advisory panel.
The result is very far from what was proposed in a consultation paper issued in June last year, which if it had proceeded as originally planned, would have seen the SFC share the frontline regulator role with the stock exchange and its listing committee in the approval of new listings and listing policies.
The SFC was willing to make the compromise as over 94 per cent of the 8,500 comments received opposed the plan, fearing the commission would become too powerful. The respondents urged it to take enforcement action only in cases of serious misconduct.
That the SFC was willing to listen to opposition voices shows the democratic nature of the local market.
The commission also listened to the market’s suggestion that it step up enforcement. In recent months it has taken tough action against market malpractice, including suspending trading of volatile new listings and disqualifying some problematic listing applications.
These actions show the commission has not abandoned the goal of upgrading market quality.
Although some commentators worry that the strong stance will affect the number of new listings because companies and banks will face more questions from the SFC, that stance is the right thing for the SFC to do.
Some companies are listing only for the purpose for creating a “shell” for other companies to take over, while some Growth Enterprise Market companies have seen their share offerings concentrated in only a few hands and their shares prices fluctuate substantially soon after their listings.
These are not the type of new listings we want to have. Only if the market can keep the quality of new listings can Hong Kong maintain its role as a fundraising hub for international investors.