Hong Kong Exchanges and Clearing Limited (HKEx) has noted media reports on the report titled “Hong Kong as a Preferred IPO Hub …Are We on the Right Track?” published by the Bauhinia Foundation Research Centre.  The following statement is in response to media enquiries.

HKEx agrees with the Bauhinia Foundation Research Centre (BFRC) that maintaining Hong Kong as a preferred Initial Public Offering (IPO) hub is an important subject, and as such it deserves a thorough and thoughtful analysis of all the issues which need to be addressed to allow Hong Kong to maintain and develop its vibrant securities market.

In the four pages of the Report’s Executive Summary, HKEx notes the BFRC makes and raises many points and queries but the main thrust appears to be that Hong Kong might want to consider adopting a more aggressive listing regime.

Reasons include:

	Large Mainland company IPOs being replaced by IPOs of smaller Mainland companies;
	Mainland policy possibly affecting Mainland companies’ choice of IPO venue;
	Lower New York Stock Exchange listing requirements;
	Alternative Investment Market (AIM) in London attracting smaller Mainland companies;
	Popularity of Singapore among smaller Mainland and Hong Kong companies; and
	Benefits for Hong Kong’s financial industry and economy.

The Report provides details on the above and compares how Hong Kong has fared against the rest of the world without straying from its main “theme”.

One “theme” HKEx has established over the years is the combination of balanced regulation and a quality market. Initiatives* which all point to this common theme have been developed to cater for the specific needs of the Hong Kong market and are in most instances the result of market consultation.  HKEx believes that its focus on this fundamental theme has contributed to Hong Kong’s enviable position as an international financial centre with a quality market of liquidity and depth in fundraising and shows how HKEx fulfils its statutory obligation as the central market operator.

The Report is timely and indeed asks many questions that HKEx and other exchanges consider from time to time.  HKEx has no doubt the BFRC wants Hong Kong to retain if not enhance investor confidence.  The Report seems to challenge Hong Kong to be a preferred IPO hub by changing some of its practices and regulations.  HKEx thinks the key question is how to do so and retain and develop investor confidence.

HKEx agrees with the BFRC that the Hong Kong economy at large will stand to benefit from a stronger ecology for the financial industry.  However, it does not believe that this could be achieved simply by adopting a more relaxed approach in accepting listing candidates.  There are other important building blocks which need to be developed to create this desired ecology.

Over the next few weeks, HKEx will study the Report in depth and exchange views with its stakeholders as the questions raised cannot be answered by HKEx alone.  HKEx is committed to working with the Government, the Securities and Futures Commissions (SFC) and other regulators and market participants on implementing changes that would strengthen the Hong Kong market.

While HKEx appreciates the BFRC’s efforts in researching this important subject and acknowledges that the Report includes a number of positive suggestions, HKEx believes the Report also contains a number of points that require further clarification or further explanation.  HKEx would welcome an opportunity to discuss the recommendations with the BFRC.

HKEx’s main observations on the Report are as follows:

	The evolution of the current regulatory regime and philosophy need to be explained in order to allow readers to appreciate the current focus on the quality of the market and the issuers.
	Comparisons with other markets did not take into account the unique features of the Hong Kong market, in particular the relatively high level of retail participation.
	The current focus on employing the Listing Rules as gate-keeping tools rather than relying on post-listing enforcement may be inevitable until certain structural issues in the present regulatory regime have been addressed, such as introducing statutory backing to the Listing Rules.
	The depiction of the Stock Exchange as seeking to be a guarantor of quality and suggestions that there have been abuses of regulatory powers are inaccurate and unfair.
	The discussion on Growth Enterprise Market (GEM) versus AIM needs to be set in a more balanced context. In particular, the readiness of the Hong Kong market for the AIM model and the problems encountered by AIM-listed companies should be discussed thoroughly.
	The Report should include a more balanced representation of views from all major stakeholders.

HKEx fully recognises that there is no room for complacency and is mindful of the competitive landscape in which it operates vis-a-vis other major exchanges in the world.  

HKEx will continue its efforts in further improving its listing regime and strengthening enforcement of the regulations, without compromising the quality of its markets or investor confidence.

* Note:

Several initiatives have been taken by HKEx in the last few years to help strengthen market quality, including supporting the SFC in introducing the new regulatory regime for sponsors that took effect in January 2007, the rollout of the Code on Corporate Governance Practices in January 2005 and collaborating the Hong Kong Institute of Certified Public Accountants in publishing the guidelines on internal control and risk management in June 2005.

Indeed, in 2007, the City of London rated Hong Kong third among the top 10 global financial centres, and one key contributor to this rating was the regulatory environment, which is considered as one of the most important competitiveness factors for a financial centre. 

HKEx has also made other efforts to enhance the competitiveness of the Hong Kong market, such as clarifying its position on listings by issuers from overseas jurisdictions via a joint statement with the SFC, revamping GEM and working towards introducing a depositary receipt regime. Over the last five years, there has been substantial growth in the Hong Kong market in terms of market capitalisation, number of newly listed companies, IPOs and post-IPO funds raised, as well as turnover volume.