SFC and HKEx Absent From Advisory Forum on IPO Reform in Ongoing Spat
Yicai Global
/SOURCE : Yicai
SFC and HKEx Absent From Advisory Forum on IPO Reform in Ongoing Spat

(Yicai Global) Sept. 9 -- The proposed SFC reforms for listing in Hong Kong has met strong objections from the local entrepreneurial community.

With the public consultation period for the regulatory reform document jointly proposed by the Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited about to expire, many representatives of the local business community seized their last chance to voice their discontent and prevent the SFC from expanding its power.

However, both SFC and HKEx representatives were absent from the recent Hong Kong listing regulation advisory forum, held on September 7, wherein many market players expressed many reservations about the consultation document.

"Even the mainland is planning to roll out registration-based IPO regulation, but Hong Kong is trying to reverse the general trend by tightening IPO regulation", Mr. Lo Ka Shui, Vice Chairman of the Chamber of Hong Kong Listed Companies, said bluntly.

HKEx CEO Mr. Charles Li previously mentioned that he might attend the forum, saying that if he were to go to the meeting together with SFC officials, "We could exchange information, and especially clarifications that need to be provided to address people's concerns," although he knew that, "As we have diverging opinions, there will be fierce debates at the meeting." However, he did not show up at the forum in the event, due to the absence of the SFC.

The SFC and HKEx jointly issued a consultation document on June 17, 2016, proposing that the IPO regulatory decision-making and governance structure at HKEx be improved. According to the document, two new committees will be established under the SFC to take charge of centralized decision-making and policymaking that has a major impact on the market indices, competitiveness and development, through close collaboration with HKEx.

The listing department and committee at HKEx will remain responsible for other public offering related decisions, which are expected to make up the majority of share listing operations.

Although both organizations were absent, forum participants held heated discussions about the consultation document. It was attended by nearly 200 representatives, including Mr. Francis Leung and Mr. Lo Ka Shui, Chairman and Vice Chairman respectively of the Chamber of Hong Kong Listed Companies.

As the forum started, Mr. Leung expressed his disappointment on the consultation document. He put forward some tough questions in a sharp tone, asking the regulators not to hide.

The improvements proposed in the consultation document would lead to disruptive changes, rather than fine-tuning, and were intended to weaken the power of the listing committee, Mr. Leung said. He demanded that the HKEx explain why the listing committee members should behave so submissively.

If the proposed changes were implemented, HKEx and the SFC would form a 'small clique with highly concentrated power, and the regulators would become corrupt over time due to the lack of checks and balances, which might even cause obstruction to the development of Hong Kong, Mr. Leung said.

The Institute of Securities Dealers also issued a statement, questioning whether proposals in the document would damage the status of Hong Kong as a financial center, demanding that the SFC retract suggestions regarding the establishment of both a listing policy committee and a listing regulation committee in the consultation document.

The majority of the participants were opposed to the listing approval reform document, with an overwhelming 84.9 percent of the participants believing that the reform will marginalize the incumbent listing committee. 89.8 percent thought that too much power would be concentrated in the hands of the SFC.

86.4 percent agreed that Hong Kong should have a disclosure-based, rather than approval based regulatory system, while 79.8 percent of the participants think that the reform will undermine Hong Kong's competitiveness in terms of attracting IPOs and development investments, a survey conducted at the forum revealed.

Even Mr. Christopher Cheung, a newly elected member of the Legislative Council of Hong Kong, complained, "By any means (HKEx and the SFC) should have sent senior managers to hear our opinions first hand." If the SFC is open-minded, it should listen to the opinions of market participants directly, and should not "say one thing and do the opposite."

The SFC had affirmed that it would not act willingly about the reform, meaning that the SFC had softened its stance on the matter thanks to concerted efforts made by the business community. If the SFC refuses to listen to their voices, he would request to meet senior government officials in Hong Kong, or even go to Beijing to make their voice heard, Mr. Cheung said.

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