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Monday, August 22, 2016, 11:23

SFC must stick to its reform plan for the sake of city's reputation

By Peter Liang
SFC must stick to its reform plan for the sake of city's reputation
Hong Kong’s securities watchdog must stand firm on its reform plan to deter bad apples from listing on the local bourse in order to protect the city’s hard-won reputation as the region’s premier international financial center. (Photo p rovided to China Daily)

The Securities and Futures Commission (SFC) - Hong Kong's stock market watchdog - has reportedly proposed a compromise solution to breaking the deadlock over the initial public offering (IPO) reform plan.

The proposed reform, which would allow the regulator to get involved in the early stages of the IPO approval process, has been met with stiff opposition from certain powerful interests in Hong Kong Exchanges and Clearing (HKEx), which has the government-sanctioned monopoly to own and operate the local bourse and its clearing facilities.

The government, which is represented on the HKEx board of directors, may have the power to push through the reform plan when it's tabled for ratification. But, such strong-arm tactics would be widely seen as a sharp departure from the free market principle that has dictated Hong Kong's economic policy since the 1950s.

Instead, the SFC is said to have suggested a mechanism to review the reform plan after it's put in place although it's not clear under what conditions will adjustments be made in a review. But, it's clearly a face saving measure for the opposing stock exchange members to abandon their fight and go along with the regulator's plan.

They should take up the offer. It's clearly not in their interest to create further market uncertainties by digging in their heels.

The existing approval mechanism is clearly flawed as it has failed to block the applications of some companies that are clearly ineligible for the privilege of listing in one of the world's most transparent and well-regulated securities markets. Allowing more bad apples to slip through the IPO screening net could further tarnish Hong Kong's hard-won reputation as the region's premier international financial center at a time when other major rivals, notably Tokyo and Shanghai, are making bold claims to snatch the IPO crown from the SAR.

Any compromise beyond the promise of future reviews would defeat the purpose of the proposed reform. The SFC must stand firm on its original proposal, and the government would need to have the resolve to push it through HKEx's board, by some judicious arm twisting, if necessary.

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