On June 23, the Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC) announced a joint operation that led to the arrest of a former head of the IPO vetting team of the listing department of Hong Kong Exchanges & Clearing Limited (HKEx, 00388.HK) and two of his associates for suspected corruption and misconduct in public office in relation to the vetting of listing applications.
The three executives, along with solicitors and sponsors, allegedly assisted some 30 unqualified companies in the listing approval procedures; some were even successfully listed.
As a listed organization, the HKEx considers profitability and stock price growth as its top priorities. However, it also acts as a watchdog for the local stock market and the sole authority to approve listing applications.
These two contradictory roles have raised much controversy over the years. Numerous proposals for the reform of the market regulatory bodies have been drafted, but none of them have been implemented. Even at times when the government took the first moves toward reform, the proposals were later withdrawn amid strong opposition from the business sector, particularly brokers.
In 2017, the SFC began adopting a “front-loaded supervision” model, which means making direct contacts with listing applicants and sponsors when dealing with applications, and raising objections at an early stage when necessary so as to eliminate suspicions of inappropriate behavior as soon as possible.
In order to secure the credibility of Hong Kong’s stock market, it is necessary to change the composition and role of the Listing Committee.
Members of the Listing Committee are responsible for monitoring and advising the Listing Division. They also have to approve listing applications and review the decisions made by the division.
Members of the Listing Committee receive an annual salary of HK$100,000 while the chairman and his deputy receive HK$150,000 and HK$125,000 respectively each year.
Such meager compensation does not provide enough incentive for members to spend much time on committee matters.
Also, as the Listing Division and the Listing Committee are both under HKEx, with the organization’s chief executive being an ex-officio member of the committee, their independence and autonomy are open to doubt.
Only by granting the listing approval and supervision rights to SFC, while HKEX focuses on product development and marketing, can the division of labor be clear and conflicts of interests avoided.
This article appeared in the Hong Kong Economic Journal on July 9
Translation by Connie Li
[Chinese version 中文版]
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