Speech on Legislative Council meeting – Formulating a Comprehensive Listing Policy

MR CHAN CHUN-YING (in Cantonese):

Deputy President, in view of the current development trend of the securities market, I agree to Mr Christopher CHEUNG’s motion and Mr James TO’s amendment.

The joint consultation paper entitled “Proposed Enhancements to the Stock Exchange of Hong Kong Limited’s Decision-Making and Governance Structure for Listing Regulation” issued by The Stock Exchange of Hong Kong Limited (“SEHK”) and the Securities and Futures Commission (“SFC”) this year has aroused heated discussion on the market. Despite the various views on the market, such views have one thing in common: the majority of stakeholders agree that the Hong Kong market is evolving, so a regular review of the regulatory mechanism can respond to the development needs of the market and ensure its effective operation on an ongoing basis.

I believe an overwhelming majority of stakeholders will agree to the objectives set out in the consultation paper, such as enhancing efficiency, raising transparency and strengthening coordination and accountability in the regulatory process. Supporters of the consultation paper think that the setting up of two new committees, the inclusion of SFC’s representatives, and also the clarification of the vetting and approval duty of SEHK’s Chief Executive can help to raise the regulatory standard. Besides, under the proposed new structure, SFC will also be able to directly participate in the early decision-making stage concerning listing regulation and also in the policy formulation process.   This can enhance the overall efficiency, transparency and accountability.

As for opponents of the consultation paper, Mr Christopher CHEUNG and Mr James TO have already discussed thoroughly some of their viewpoints.   I am not prepared to repeat them here. Their other viewpoints assert that since the existing three-tier regime (comprising the Government, SFC and SEHK) has been operating satisfactorily since 1989, and also because the duty of making listing decisions has been mainly entrusted to the existing 28-member Listing Committee, it is uncertain to say whether efficiency and representativeness can be enhanced by transferring this duty to a several-member-strong Listing Policy Committee (“LPC”) and also a Listing Regulatory Committee (“LRC”) charged with the regulation of listing matters.   It is also proposed that their compositions should include a representative of the Takeovers and Mergers Panel and SFC’s senior executive officers. But it is difficult to prove that their professional knowledge, sense of judgment and experience are better than the existing Listing Committee members. For these reasons, I think that for the time being, the consultation proposals can hardly convince us that the listing decisions under the new structure can be fairer and more orderly with greater effectiveness, transparency and competitiveness when compared to those under the original structure.Deputy President, the ultimate goal of reforming the decision-making and governance structure of listing regulation should be enhancing the quality and efficiency of vetting and approving  listing applications. So, more different
professionals should be involved in the decision-making process. And, SEHK should devise an appropriate mechanism to prevent conflicts in its dual role as a vetting and approval authority and also an operator.

The existing Listing Committee comprises more members with diversified backgrounds.   The merit of this is that it is not susceptible to manipulation and will not form prejudice easily.   This is critical to balancing the views of people with various interests.   In contrast, due to the fixed and small memberships of the proposed LPC and LRC, their members will become the easy target of
lobbying.   While they will only target at certain listing cases with abnormalities, the design of this overall structure will not necessarily be better than the design of the original framework.

Besides, I want to bring up one point, which is also very important.   Some legal academics have raised questions about the legal principles concerning this consultation.   The relevant issue should warrant various sides’ concern, so as to ensure that the reform this time around is founded on a solid legal basis. In reply to an oral question of Mr Kenneth LEUNG this morning, the Secretary for Financial Services and the Treasury said that law enforcement alone was not sufficient to combat market misconduct.   But after all, in order to resolve market misconduct which jeopardizes the interests of the public and investors, such as the manipulation of share prices, corporate governance deficiencies and incomprehensive disclosure, the regulatory authorities must begin with enhancing
their efforts of investigating lawbreakers and law enforcement, impose heavy penalties for any violation of the law and set specific precedents, so as to enable all enterprises preparing for listing, listed companies and the relevant stakeholders to understand that they must bear legal liabilities for non-compliance with the relevant requirements. In any case, I believe strengthening investigations into lawbreakers and law enforcement can achieve a desirable deterrent effect. Deputy President, a healthy and orderly securities market is very important to Hong Kong’s status as an international financial centre. I hope that after heeding more different views, various sides can formulate reform proposals which are truly consistent with the realities of Hong Kong, so as to facilitate mutual connection between both places in securities investment and enable the sustainable and healthy development of Hong Kong’s financial and securities industries while also protecting investors’ rights and interests.

I so submit.   Thank you, Deputy President.