Hong Kong's stock regulator opposes proposal for weighted voting rights
Hong Kong’s stock market watchdog, the Securities and Futures Commission, said it did not support a draft proposal to allow companies to issue weighted voting rights.
Hong Kong’s stock market watchdog, the Securities and Futures Commission, said it did not support a draft proposal to allow companies to issue weighted voting rights (WVR), a week after markets operator Hong Kong Exchanges and Clearing said it would launch a second round of consultation on the contentious topic later this year.
“The SFC is of the view that Hong Kong’s securities markets and reputation would be harmed if WVR structures became commonplace,” the SFC said in a statement on Thursday.
On his website, shareholder activist David Webb said: “This should kill it, as all changes to listing rules must be approved by the SFC.”
The SFC decision puts it at loggerheads with the HKEx over an issue many in the business community supported, hoping it would lead to greater deal flow and fee income. The debate was revived last year after Alibaba jilted Hong Kong in favour of New York, where dual-class share-holding structures enshrining minority control are allowed.
In March, SFC chief executive Ashley Alder raised concerns about the integrity of Hong Kong’s securities markets if the listing rules were amended.
“Would fund managers apply a ‘governance discount’ to stock prices, or adjust portfolio weightings away from Hong Kong?” he said. “Will the WVR proposal be the magic bullet that would cause listing hopefuls to choose Hong Kong over a foreign stock exchange?”
The SFC said the draft proposal did not explain how many proposed safeguards and conditions could be monitored on an ongoing basis and what actions could be taken by regulators or public shareholders if they were not complied with.
A number of large international fund managers, including Fidelity and BlackRock, have warned that dual-share structures could diminish minority shareholders’ voting rights.
The exchange’s chief executive Charles Li Xiaojia said last week: “The second-stage consultation on weighted voting rights structures should consider the balance of investor protection and maintaining our competitiveness, as answering with a simple yes or no would be premature.”
The exchange said yesterday the SFC’s view would “be material” to the proposal put forward for second-stage consultation.
Additional reporting by Benjamin Robertson