Hong Kong Brokers See Election as Chance to Kill IPO Overhaul

(Bloomberg) -- Hong Kong brokerages have called on candidates for the city’s top job to ditch a planned overhaul of how initial public offerings are screened, trying to kill efforts that have been backed by international investors including BlackRock Inc.

The lobbying targets a proposal by the Securities and Futures Commission and Hong Kong Exchanges & Clearing Ltd. to restructure the bodies that review listings applications. Brokers have told the three candidates that defeating the plan is a priority, saying it would hurt business and hand more power to the regulator, according to Vincent Lee, chairman of brokerage Tung Tai Group and one of 1,194 voters who will pick Hong Kong’s next leader on Sunday.

“The key issue we are looking for is their position on the proposed listing restructuring, which in our opinion is not in the interest of Hong Kong development,” said Lee, who is also an independent non-executive director of HKEX. “It gives the SFC too much unchecked power.”

The effort highlights how the city’s electoral system gives out-sized power to the interests of select business groups. Some asset managers, industry bodies and international investors that say the proposal will improve Hong Kong’s financial markets, including BlackRock and ICI Global, aren’t represented on the electoral college.

Backing Lam

The proposed structure would see two new listings committees, and give the regulator more power to supervise IPO applications, HKEX and the SFC said in a joint statement in June. The plan formed part of a broader effort to tackle issues such as back-door listings and prolonged trading halts. Authorities are also looking at the volatility of new small-cap listings on the city’s second exchange.

While none of the three candidates have said explicitly whether they would support the proposal, 16 of 18 broker-electors nominated Carrie Lam, the city’s former No. 2 official, according to an official announcement. Lam, the front-runner, is seen as sympathetic to the brokers after she voiced concerns last month that too-rigid regulations might be hurting financial services.

Representatives for Lam and Woo Kwok-hing didn’t reply to emails seeking comment. A spokesman for former financial secretary John Tsang didn’t say whether he would support the proposal if elected.

“The aim is to strike a right balance between the protection of investors and the competitiveness and development of our financial services industry,” the Tsang spokesman wrote in an email about the proposal. Brokers see Tsang as more likely to favor the listings proposal because he oversaw its genesis while in government.

Market Quality

Hong Kong’s leader will be chosen by an electoral college that includes representatives of various political bodies and industry groups. A secret ballot holds open the possibility for a surprise outcome even though Lam is China’s favorite for the job and received the most nominations.

While securities and gold and silver trading firms hold 18 votes, the proposal has also generated criticism among a wider group of bankers and business leaders who are on the election committee. Brokers as a group sent a wishlist to the candidates that included helping local firms compete against Chinese and foreign competitors, said Lee Jor Hung, a voter and chairman of DL Brokerage Ltd.

The regulator has raised concerns over listing quality and stepped up scrutiny of sponsors, who in Hong Kong can be held accountable if offer documents contain untrue statements. Last week the SFC fined Bank of Communications Co.’s investment-banking unit HK$15 million ($1.9 million) for failings related to its work on a Chinese company’s IPO in 2014.

“We hope that the new listing structure will improve the overall quality and transparency of the listing process, strengthening investor protection,” ICI Global, an asset management association, said in a statement on Sept. 6.

To contact the reporter on this story: Benjamin Robertson in Hong Kong at brobertson29@bloomberg.net.

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Daniel Ten Kate

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