Jake's View

Hong Kong’s stock regulator has vowed to toughen up, but don’t hold your breath

The Securities and Futures Commission bark can have a loud bark, but its bite is somewhat random

PUBLISHED : Saturday, 29 July, 2017, 10:50pm
UPDATED : Sunday, 30 July, 2017, 1:55am

Hong Kong’s Securities and Futures Commission said ... it will “no longer act behind the scenes” and will use its existing legal powers to regulate listed companies more directly and proactively, a move which marks a major change in how the city’s stock markets are supervised.

Business, July 14

I missed this one when it came out. Reading SFC policy statements is like swotting for exams. Who wants to? And anyway I was just on the point of taking some leave (Oz, wonderful time, thank you).

But sometimes you do need to put in that swotting. The statement was actually the SFC’s riposte to the stock exchange’s proposal of a no-holds-barred “New Board” that will allow anyone to list even his underpants if he can praise them as much as Calvin Klein does his own.

“Just try it, fellas, and see what happens to you,” said the SFC in so many words through both a speech by chief executive Ashley Alder and the first issue of yet another regular SFC publication to bore the army of lawyers and compliance officers that have to read these things for their livings.

The SFC will invoke something called SMLRs to stop the trash listings. SMLR, says Ashley, is an acronym that stands for statutory listing rules. He is wrong. Technically it’s only an abbreviation, not an acronym, and, by the way, sir, what does the “M” stand for?

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But we shall leave these important matters aside. SMLRs are the SFC’s listing rules, as opposed to those of the stock exchange, and the SFC will now invoke them at an “early stage”. Thus bye-bye to the stock exchange’s godlike listing committee, in front of which investment bankers routinely kneel and bow their heads to the ground in hopes that it will not ask too many questions about the finer points of the securities they hope to list.

In actual fact the listing committee is not meant to ask these questions anyway. It is up to investors to determine whether any proposed listing has investment value.

The committee’s job is only to determine whether listing candidates are “suitable”.

This job will still exist when the SFC, armed with its SMLRs (let’s hope none of these deadly weapons fall into the hands of Iraqi jihadists), pushes the committee aside at the admission gates of the stock exchange.

But what does “suitable” mean in this context? It is a question that has had more than one member of the committee scratch his head in puzzlement over the years.

In the days of the late Ronald Li Fook-Shiu’s chairmanship of the stock exchange it meant that he knew who the crooks were and kept them out.

It now means little more than that all the formal requirements for such things as profitability, clean accounts, and valuation statements are met.

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If they are not met, the sponsor pays another lawyer, accountant or surveyor to furnish and sign the required documents. They are then met. Simple.

This is not good enough for the stock exchange’s present chief executive, Charles Li Xiaojia. He wants no barriers at all.

By formally proposing this preposterous idea, however, he will now see at the exchange’s gates a fiercer watchdog than the listing committee has ever been. How ironic.

Except that however loud this watchdog’s bark, its bite is somewhat random. It always prefers small victims to big ones and it only starts biting after it has not even barked at numerous transgressors, whom it has already allowed to pass by.

I don’t rate the SFC’s record as a guardian of small investors highly.

What we still need is class action lawsuits that will allow all the same complaints to be bound together as one lawsuit and contingency fees whereby the lawyer is only paid if the lawsuit is successful.

But that would make sense. Can’t have that.