SFC orders HKEX to improve Chinese wall between IPO business and regulatory units
- SFC review shows HKEX fails to prevent conflict of interest
- The improvement will help upgrade quality of Hong Kong stock market
The Securities and Futures Commission has ordered Hong Kong Exchanges and Clearing, which operates the third-largest stock market in Asia by market capitalisation, to do more to prevent internal conflicts of interests over new listings.
The exchange, which was the largest IPO market worldwide seven times in the past 11 years, both approves new listings and earns money from listing fees paid by companies floating on the stock exchange.
Removing potential conflicts of interest is a crucial step towards strengthening investors’ confidence, which will help HKEX compete with other exchanges such as the Nasdaq in the US as well as the Star Market in Shanghai.
“It’s the right way forwards as it will upgrade the quality of new listings … and strengthen Hong Kong’s status as an international financial market in the longer term,” said Tom Chan Pak-lam, chairman of Hong Kong Institute of Securities Dealers.
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“The listing department’s Chinese wall protocol contains numerous ambiguities, does not fully address key aspects of the Chinese wall and may be difficult for department staff to interpret and follow,” the SFC report said.
The SFC urged the listing department staff who vet the listing candidates, not to attend introductory meetings with prospective listing applicants alongside HKEX’s business executives. This is because it “may give an impression that the listing department is assisting the HKEX business side to win business or to service issuers and applicants”.
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The commission found HKEX chief executive Charles Li Xiaojia and the then listing head David Graham joined some of the meetings in 2018, which the SFC said is inadvisable.
The commission also told the HKEX to review its internal procedures “to ensure that HKEX business executives do not and are not seen to pressure the listing department to respond more swiftly to particular applicants.”
The SFC gives detailed instruction on this point, citing the business promotional staff should avoid “repeatedly referring to the desirability of those applicants or by copying the chief executive to whom the head of listing reports on an email”.
“We look forward to continuing to work closely with the SFC to refine and further raise the competitiveness of our listing regime,” a spokesman of the HKEX said.
