SFC should take full regulatory control of Hong Kong markets
After 11 years vetting listing matters and with a reserve of HK$7 billion, it should be able to do the job
The Securities and Futures Commission and Hong Kong Exchanges and Clearing, guardians of Hong Kong’s status as a global financial centre, are at loggerheads again over the principle of “one share, one vote”, which underpins the city’s stock market rules.
Their disagreement has been running hot and cold for the 15 years in which the stock exchange operator has had a twin – and arguably conflicted – role as a listed, profit-driven enterprise and the author of the market’s front-line trading rules with a responsibility to put protection ahead of profit.
The latest blow-up came as the SFC once again made very public its opposition to HKEx’s proposal to allow dual shareholding structures, a move seen as an attempt to secure billions of dollars worth of new listings from mainland technology firms.
Underscoring just how entrenched the opposing views of the regulatory camps are, a public statement rejecting the exchange’s plan came three days ahead of a board meeting at which the SFC was supposed to discuss the issue and reach a decision.
Clearly the outcome of that meeting was never going to be in doubt.
The simplest way to end this unseemly to-and-fro would be for the SFC to take sole control of the market’s regulatory powers. The law clearly defines the SFC as the ultimate regulator on listing matters, with power to approve or reject proposals made by the exchange.
This was not a problem in the 1990s when the stock exchange was not a profit-making organisation. This, however, changed when it became a listed company in 2000.
But the key question is whether the SFC has the right people in place to enable it to take full control.
The discussion in the early 2000s to this key question was a “No” at that time. This was why government introduced the dual filing system in 2004 to let the SFC and the stock exchange jointly vet new listings.
But now, after having its own staff to vet listing matters for 11 years and a reserve of HK$7 billion, the SFC should have no problem getting sufficient manpower and resources to do the job.
The SFC has to do a lot of hiring to ensure its regulatory role. The fact that it will lose its head of enforcement, executive director Mark Steward, to Britain’s top regulatory body in September is not a good sign.
A headhunter is what the SFC needs the most now.