Hong Kong’s listing reform survey draws a resounding ‘nay’ for change

Proposals to amend Hong Kong’s rules for fundraising and stock market listing have been roundly rejected by representatives of the city’s listed companies, brokers and lawyers in a public consultation as the vast majority of them voted to maintain the status quo, according to lawmakers.

About 94 per cent of the 8,500 respondents in a survey are opposed to change while the remainder – largely made up of representatives of the accounting industry – supported change, according to David Graham, chief regulatory officer and head of listing at Hong Kong Exchanges and Clearing.

“Those opposed to the proposals have expressed concern about the risks of over-regulation and the possibility of excessive power” in the hands of the Securities and Futures Commission, the industry watchdog, Graham said in the presentation of the consultation findings to lawmakers at the Legislative Council on Tuesday.

Even though Hong Kong remained the world’s top destination for initial public offerings in 2016, it has been losing ground to New York, Shenzhen and Singapore in attracting technology companies to list.

Jack Ma Yun, founder of Alibaba Group Holding, which owns the South China Morning Post, had been a critique of Hong Kong’s financial regime, describing it last year as an “irrelevant” framework that was more suited to attracting property developers instead of technology start-ups.

Among the issues being considered were the role of the SFC in approving stock listings and the allowance of stocks with different voting rights to list in Hong Kong.

The reforms would allow the SFC to be more involved in the early stages of stock listing. These include creating two listing committees – one for policy and one for regulatory issues – on top of the existing listing committee, with equal representation by the SFC and HKEX, to approve complicated new listings and set listing policies.

The proposed changes would upend the current structure whereby HKEX’s listing division staff give preliminary approval to a listing and can suggest listing rule changes, which are then submitted to the 28-member listing committee comprising accountants, lawyers, executives of listed firms and fund managers for final approval. Currently, the SFC is not directly involved in the process but has the power to reject any applications or listing policies.

Christopher Cheung Wah-fung, lawmaker for the financial services sector, said the city’s brokers had mixed views on the reform.

“It has the advantage of having the SFC involved in setting listing policies at an early stage to attract more technology and new-economy firms to list here,” he said. “We, however, are opposed to allowing the SFC to directly approve individual listing applications.”

Some lawmakers who opposed the proposed changes boiled it down to a struggle of influence between the SFC and the exchange.

“The proposals are a turf war and power struggle between the SFC and HKEX,” said Regina Ip Lau Suk-yee, lawmaker and former candidate for the post of Hong Kong’s chief executive. “The proposed reform is set to add power to the SFC in determining the outcome of stock market listings.”

Jeffrey Lam Kin-fung, the vice-chairman of the pro-business Business and Professionals Alliance for Hong Kong and an opponent of the reforms, said any change to the current rules would make it harder for small companies to raise funds in the city.

Adopting football analogy, Lam describes the SFC as “now playing the role of a defender, but the proposed reforms will turn the agency into a striker, which gives it too much power”.

The survey had been 10 months in the making, launched jointly by the SFC and HKEX in mid-June last year to bring different representatives of Hong Kong’s financial industry to express their thoughts on the proposed changes.

The deadline of the survey was extended for two months in September 2016 due to conflicting views on the proposals. The timing for making a final decision on the proposals has not been disclosed.