Last April, the HKEX carried out its largest ever listing reform to attract multiple-class shareholding tech companies and pre-revenue biotech companies.

“As one of the active asset managers with operation in Hong Kong, we think the enforcement actions by regulators are constructive to investors, as these can ensure the quality of Hong Kong-listed companies and maintain the reputation of Hong Kong financial market,” said Raymond Chan, chief investment officer of equity for Asia-Pacific at Allianz Global Investors, which manages €505 billion (US$567 billion) of assets.

Financial Secretary Paul Chan Mo-Po told the Post that the SFC and HKEX have the government’s full support.

“We welcome the action taken by SFC. It demonstrates SFC’s determination in ensuring the healthy development of the stock market and protection of investors,” Chan said. “It also sends a clear message that while we strive to come first in terms of funds raised through IPOs, the quality of listing is of paramount importance.”

The HKEX’s goals, Chan said, echoes with the vision of his budget this year.

“Our vision is to develop Hong Kong into the international financial centre of China, Asia and the world by riding on the increasing economic size of China and harnessing global opportunities.

“HKEX will be our close partner in the further development of our financial services sector,” the financial secretary said.

The bourse operator’s chief executive Charles Li Xiaojia also wants to enhance the use of technology and develop a suite of exchange-traded products (ETF) to give it an edge over its regional rivals.

The HKEX has consistently ranked at the top among global exchanges in terms of funds raised. It was the No 1 IPO market last year – the sixth time in the past decade.

A PwC report showed that the HKEX and the London Stock Exchange both ranked third in a study of listed companies that are keen on listing beyond their home market by 2030. Only New York Stock Exchange and Nasdaq rank higher. HKEX is constantly vying with the two US exchanges for the global IPO crown.

Hong Kong regains global IPO crown from New York in 2018 thanks to its listing reforms

The HKEX slipped in the first quarter to second place. It was outdone by Nasdaq, thanks to the mega listing of ride-hailing giant Lyft, according to KPMG data.

But a large number of IPOs does not necessarily translate into quality. Four IPOs from 2009 – Hontex International Holdings, Real Gold Mining, China Forestry Holdings and China Metal Recycling – collapsed soon after listing. It was also the same year the HKEX rose to the top global IPO rankings for the first time.

It was because of the shortcomings of the IPO sponsors that forced SFC to step up its vigilance.The investigation found these firms either had overstated turnover or pre-tax profits ahead of the listing. The SFC punished their sponsors, including UBS, Citi, Standard Chartered and Mega Capital, with record fines.

The regulator meanwhile is pursuing legal action against China Forestry’s former chairman.

Institutional investors, who represent over 70 per cent of Hong Kong’s market turnover, unanimously supported the SFC’s actions, saying it can improve the exchange’s standing and attract additional funds.

Claude Haberer, head of Swiss financial firm Pictet Wealth Management in Asia, said stricter rules will give added confidence to investors.

“A more professional and rigorous approach is beneficial, especially at these times of uncertain equity markets when we advise caution and extra selectivity to our investor customers,” he said

Mark Konyn, group chief investment officer of AIA, the largest pan Asia life insurance company, said quality was the key to attract investors and had a lot of confidence in the Hong Kong stock exchange.

“As a long-term investor, AIA focuses on the quality and sustainability of the business model and the pricing at issue to determine entry value. In terms of listing requirements these need to ensure attractiveness for both the issuing company and would be investors.”

US financial firm Vanguard, one of the world’s largest investment management companies with US$5.2 trillion assets under management, said the actions taken by SFC and HKEX would encourage market development.

“We support any enhancements to the market infrastructure and regulatory regime that foster the growth of the Hong Kong ETF market,” said Charles Lin, head of Asia at Vanguard.

According to a report by law firm Freshfields Bruckhaus Deringer, the HK$786.7 million (US$100 million) penalty imposed on the four investment banks for misconduct was four times the 2018 total of HK$194 million.

Securities and Futures Commission imposes a whopping HK$497m in fines last year

The SFC has fined 13 sponsors more than HK$940 million since 2003 when the new securities law came into effect.

The record fine sends a strong message to the market on SFC’s zero tolerance on misconducts, according to SFC chief executive Ashley Alder when he announced these fines this month.

But Thomas Atkinson, executive director of enforcement at the SFC, said that the heavy fines on the sponsors was just the start in a series of tough action planned by the watchdog.

“We understand that bigger fines do not necessarily equate with better deterrence, but in our case, it does illustrate that we are ‘on strategy’ – as we focus on the more serious matters impacting the investing public, the size of our fines has naturally increased as well,” Atkinson said during a regulatory forum in October.

He added that the SFC was investigating 28 listing sponsors and planned to carry out its ever largest legal action on 60 individuals and companies for misconduct in 2019.

Without naming any company, Atkinson said that he would be dealing with the menace of “nefarious networks”. Such networks of licensed dealers, money lenders and financial advisory service providers control a number of listed companies for their own benefit at the expense of small shareholders.

“Life is about to get very uncomfortable for those who abuse our capital markets,” Atkinson said.

In December 2017, the SFC teamed up with the Independent Commission Against Corruption (ICAC) to improve its effectiveness in dealing with financial misconduct that also involves corruption. The joint force’s first mission led to the arrest of four former executives of Convoy Global Financial and its network companies.

Activist shareholder David Webb two years ago had identified Convoy and related companies among 50 firms to be avoided, calling them the Enigma Network.

Atkinson said the SFC over the last year has searched 200 offices to collect 4,000 items of evidence but the regulator has not yet charged anyone.

The SFC and ICAC declined to comment on the progress of the investigations.

In its most recent regulatory action, the SFC last week ordered nine stockbrokers to freeze certain clients’ accounts related to suspected market manipulation of China Ding Yi Feng Holdings between 2018 and early 2019. The commission suspended its share trading from March 8 and searched its offices.

The investment firm Ding Yi Feng’s stock has risen some 8,500 per cent over the past five years, making it the best performer in MSCI’s global stock index, according to Bloomberg data.

Laurence Li Lu-jen, chairman of the Financial Services Development Council, succinctly summed up the HKEX and SFC’s mission: “Keeping market quality to the highest standard is always the key to attracting investors to trade as well as to attract good quality companies to list here.”