The ViewOutcome of Hong Kong listing turf war will be city’s most important change in corporate governance

Speak a little truth and people lose their minds. No one expected a turf war when the Securities and Futures Commission (SFC) and Hong Kong Stock Exchange (HKEX) jointly launched a three month consultation in June to collect views from the market on amending the listing procedure.

Under the proposals, a listing regulatory committee and a listing policy committee, with equal representation from the SFC and HKEX would manage the approval process. Sharing power over HKEX’s monopoly powers and even the mere hint of restricting new listings provoked rebukes from vested interests.

In an interview with the SCMP, Lo Ka-shui, vice-chairman of the Chamber of Hong Kong Listed Companies, who is also chairman and managing director of listed property developer Great Eagle Holdings, said, “The proposal to let the regulators determine which companies should be listed will move Hong Kong backwards, while the world’s other markets are all moving to a disclosure based regime. A regulator-based regime would not promote market development and our stock market will be further stifled which would be damaging to Hong Kong as an international centre.”

Christopher Cheung Wah-fung, the incumbent lawmaker representing stockbrokers opposed the reforms, purporting they might lead to a significant drop in initial public offerings in Hong Kong. “Many brokers are worried their rice bowls may be broken,” he said.

The “iron rice bowl” mentality will only lead to HKEX returning to its casino days when the exchange was an assembly line for speculative ammunition rather than a capital market. An international and historical perspective is needed in this consultation rather than a duty to filling iron rice bowls.

One of the problems of applying this local village mentality is it hinders HKEX from evolving. Instead, a slavish devotion to maximising the exchange’s monopoly only blinds it to manifest challenges.

China’s economic and financial importance has resulted in the HKEX becoming the world’s largest and probably most important stock exchange. What the exchange and regulators must comprehend is that China and Chinese companies pose a dilemma never before encountered in capital markets: it is the world’s second largest economy while at the same time an emerging market. This means that HKEX will host some of financial history’s biggest listings along with the biggest regulatory headaches.