Hong Kong proposed changes to its stock market listing regime on Friday, 17 June, in a move that could curb the regulatory powers of the city's stock exchange and hand more authority to the securities watchdog in one of the world's top destinations for new share issues.
The proposals come after investor criticism of possible conflicts of interest in the current framework where Hong Kong Exchanges and Clearing Ltd ("HKEx") acts as both the profit-driven market operator and regulator of initial public offerings ("IPOs"). HKEx has also clashed with regulator the Securities and Futures Commission ("SFC") over listing matters.
In the 2013 run-up to Chinese e-commerce giant Alibaba Group Holding's blockbuster listing, HKEx came out in support of Alibaba's so-called weighted voting rights while the SFC blocked the shares.
Under the new proposals, two new committees will be created to develop and regulate listing policies in Hong Kong. HKEx's CEO will no longer sit on the listing committee while the SFC's CEO will sit on the newly created listing policy committee.
The listing policy committee will steer overall policy on listing rules within the stock exchange while the listing function will continue to remain with HKEx.
The proposals were published by SFC and HKEx in a consultation released on Friday that will run for three months.
The new regulatory structure will help the exchange and SFC better spot and address problems in the market, including market manipulation, back door listings and the rise of shell companies, the SFC and HKEx said.
"There are so many issues we are now facing, sometimes pricing manipulation, sometimes misconduct...to provide a one stop platform so everyone can holistically review everything together is a very good idea", said Brian Ho, executive director of corporate finance at the SFC.
David Graham, chief regulatory officer and head of listing at HKEX said the current structure was not broken, but added the new structure, in removing the HKEx CEO from the listing committee "takes away the perception of the conflict around the commercial operations of HKEx."