Investors oppose brokers and lawyers on Hong Kong listing rule reforms

Consultation reveals majority opposition to proposal to give regulator more say over listings

The reform of listing rules, including the allowing of shares with different voting rights, are most likely to be postponed again in Hong Kong, with a sweeping majority of stakeholders opposing proposals following a 10-month consultation.

According to the South China Morning Post, about 94 percent of 8,500 issuers, brokers, lawyers and investors surveyed have voted against the changes, which would give the Securities and Futures Commission (SFC) of Hong Kong an active part in the listing process.

David Graham, chief regulatory officer and head of listing at Hong Kong Exchanges and Clearing (HKEx), explains in a presentation to lawmakers that concerns were expressed about ‘the risks of over-regulation and the possibility of excessive power’ given to the SFC.

The preliminary findings have been announced at a time when the watchdog has been cracking down more strongly on financial misconduct, fining 55 percent more executives year on year, with investigations up 82 percent.

Nevertheless, members of the investment community and the accounting profession are advocating for the stock exchange to relinquish more power to the regulator, a highly needed step toward a ‘more trustworthy market,’ stresses local investor activist David Webb. ‘In no other field of commerce in Hong Kong do we have for-profit regulators, let alone listed ones,’ Webb says on his blog. ‘Hong Kong is also the only one [of the three major international markets] with a statutory monopoly stock exchange.’

In the current setting, issuers wanting to go public must get approval from HKEx’s listing committee. The proposed reforms would involve two additional committees with equal representation from the exchange and the watchdog, overseeing relevant policy and regulatory issues. This would allow the SFC to be involved at an early stage in individual applications, in addition to its veto power to reject any application or listing policy.

Webb regrets the slow pace at which listing reforms, started 13 years ago in order to ‘free HKEx from its conflict of interests as a for-profit regulator’, are evolving. ‘Only one of the listing rules – the requirement to disclose price-sensitive information – has made it into law, and even then, only at the level of a civil offense,’ he highlights.

He remains assured, however, that the concerns of the investment community will be heard. ‘When the results are eventually published, I am confident they will show that the vast majority of the submissions from investors are in favor of the proposals,’ he tells IR Magazine. ‘Many investors said – as I did – that the reforms should go further and move the entire regulatory function to the SFC, giving it the same role in the regulation of listed companies as it has in takeovers under the Hong Kong Code on Takeovers and Mergers, and placing it in a similar position to the UK Listing Authority.’

Alibaba founder Jack Ma has reportedly said that Hong Kong’s stock market, although the most popular exchange for IPOs in 2016, is better suited for drawing property developers than more dynamic internet start-ups.


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