No dual listing preserves stock market's integrity
Updated: 2015-10-07 08:38
By Peter Liang(HK Edition)
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The Hong Kong Stock Exchange has finally come to its senses in agreeing with the watchdog agency to drop the proposal of a dual listing - at least for now.
In a statement released earlier this week, the stock exchange said that after taking into consideration the objection of the Securities and Futures Commission (SFC), it has concluded that this is not the time to pursue the matter further. It said the issue will be kept under review.
Minority shareholders can breathe a sigh of relief, not so much because of this particular development but because the integrity of the stock market has been preserved by the unyielding champion of their collective rights. This is in the face of growing pressure from the powerful stockbroking community. The stock exchange operates under a monopoly controlled by a publicly listed company. This in turn is controlled by major stockbrokers. They mounted a campaign to change the listing rules after mainland Internet giant Alibaba moved its dual-listing IPO to New York.
The stock exchange argued that lifting the ban on dual listing could benefit the Hong Kong's financial sector by attracting many more mainland technology companies to seek a listing here rather than in the United States. But its proposal was rejected by the SFC on the basis that dual listing is an inherently unfair arrangement which can lead to abuse by controlling shareholders.
The US allows some form of dual listing for two reasons. One is to help promote the domestic high-tech industry by making it easier and more attractive for startup entrepreneurs to raise capital in the stock market. This has, in turn, provided a boost for the many venture capital, or angel, funds by facilitating the recovery of their investments or their exit.
The second reason is that the legal system in the US allows minority shareholders to file class action claims as a group against alleged transgressions by management of controlling shareholders of publicly listed companies. This has helped greatly reduce the cost of legal action against rich and formidable foes.
None of these reasons applies in Hong Kong, which does not have many startup enterprises that have grown to the stage that can qualify them for raising fund directly in the capital market. What is more, the judiciary makes no provision for class action suits, making it prohibitively costly and time-consuming for minority shareholders to file individual suits to seek justice in the courts.
It is important to bear in mind that changing the rules to allow dual share listings does not necessarily have a big effect in luring mainland technology companies to Hong Kong. They will consider many other things, like pricing and market exposure, before deciding where to list.
What the change in rules may do is to encourage controlling shareholders to seek dual share listings of their companies for self-serving reasons.
(HK Edition 10/07/2015 page4)