In Hong Kong, New Listings Matter Most

(Hong Kong) — Hong Kong’s capital market for years has been juggling two priorities — improving the policing of market abuse, and attracting more new listings.

In the listing reforms unveiled Friday, the city appears to have given more weight to the latter — a development that could be explained in part by the fact that Shanghai and the U.S. have overtaken Hong Kong as the most popular destinations for lucrative initial public offerings (IPOs) this year.

The reforms will change the listing process in two ways.

First, the market operator, Hong Kong Exchanges & Clearing Ltd. (HKEx), will remain the primary body to review IPO candidates. The securities regulator, the Securities & Futures Commission (SFC), will not get to share that role with HKEx as the SFC has always wanted. However, the SFC will be able to raise objections to new listings during reviews and also can directly conduct independent inquiries of the candidates.

Currently, the SFC has the statutory power to reject any IPO application. But if the commission needs to ask the IPO candidates questions, it must relay all their queries via the HKEx.

Local media said the SFC’s proposed involvement in IPO screening met with vehement opposition from the stockbroking community, fearing stronger regulations will lead to even fewer new listings.

The SFC is not often directly involved in the approval process that is currently overseen by the existing 28-member listing committee, though the SFC has legal power to reject any applications.

During the first half of 2017, Hong Kong recorded 69 IPOs, almost double from the 38 a year ago, according to auditing firm KPMG. However, total funds raised rose only 22% to HK$53 billion ($6.78 billion), as most of the newly listed firms are small and medium enterprises.

Secondly, a new committee, the Listing Policy Panel, will be created. The panel will have no power to formulate new policies, but will serve as a discussion platform on listing matters between the HKEx and SFC.

SFC Chairman Carlson Tong said in a statement that the new arrangement doesn’t mean the commission is backing down from looking for more of a front-seat role.

“The SFC, as the statutory regulator, will continue with its new front-loaded approach to directly intervene in serious listing matters to protect our markets,” Tong said in a statement.

HKEx Chairman C.K. Chow added: “Under the enhanced structure, the Exchange will remain listed issuers’ primary frontline regulator and its Listing Committee will continue to make decisions under the Listing Rules, including decisions on suitability for listing. We will continue to work hard in relation to our regulatory responsibilities.”

Contact reporter Dong Tongjian (tongjiandong@caixin.com)