Listing reforms may still achieve goal
While the reforms to the stock market’s listing and fundraising regime have been watered down, they may still clear the way to attracting more start-ups and new economy companies
To cement Hong Kong’s position as a financial hub, there is consensus that its stock market could do with reforms to its listing and fundraising regime to enhance both its appeal to start-ups and new economy companies, and protection for investors. But it is now confirmed that reforms will not include the bigger role sought by the market watchdog, the Securities and Futures Commission (SFC). This comes after 94 per cent of about 8,500 respondents representing companies, brokers and finance professionals opposed involving the SFC in the early stages of the listing process. In watered down listing reforms announced after a market consultation, Hong Kong Exchanges and Clearing (HKEX) retains its primary role in approving company listings.
It remains important, however, to strike a balance between the SFC’s concern with investor protection issues such as financial discipline and the quality of companies, and HKEX’s need to make the market more attractive for listings by start-ups and new economy companies. In the face of aggressive competition from rival bourses, it was good to hear the secretary for financial services and the treasury, James Lau, say all three parties are open minded about this.
The stakes are high. Hong Kong may have been the world’s top initial public offering market last year, but financial industry companies were responsible for 59 per cent of funds raised, while technology plays raised the equivalent of 0.8 per cent. In the first half of this year, a lack of new technology offerings saw the city slide to third place for IPOs behind New York and Shanghai. New share sales fell nearly 20 per cent in the six-month period to US$5.6 million.
This cannot continue if Hong Kong is to avoid losing its status as an international hub. The need to attract more start-ups and new economy firms is paramount. That said, the watered down reforms may clear the way for progress towards this goal by allowing firms with dual-class shares to list on a third board with more relaxed rules than the main board and the Growth Enterprise Market. Dual-class shares enable founders and managers to exercise control at the cost of minority shareholder rights, raising accountability concerns.
There remains the problem of a conflict of interest between HKEX, as a for-profit company listed on its own main board, and its quasi-regulatory role, given that IPOs account for a large part of its revenue. However, the SFC’s retention of its role in setting listing policies, plus representation on a panel to support the listing committee, should enable it to stand up for a more effective role in investor protection. It also could go some way towards finding a balance that would counter the perception of conflict of interest without burdening the market with more regulation.