Hong Kong's regulator has ridden to the defence of the local market's principles. By rejecting a stock exchange plan to weaken "one share, one vote" rules, the Securities and Futures Commission has acted for the long-term good of the financial centre. Though some companies might follow Alibaba and list elsewhere, public investors should benefit.
The SFC's verdict, agreed unanimously by its board, effectively ends a two-year debate that followed the rejection of the Chinese e-commerce group's giant initial public offering. Last week, exchange officials proposed allowing executives to retain voting control after an IPO, provided the company met certain criteria, was listing for the first time, and exceeded a certain size.
The SFC comprehensively demolished these caveats, pointing out that they involved subjective judgments, that bigger companies are no less risky, and that existing groups would try to find ways around the rules.
It's unusual for such a dispute to spill into the open. Nevertheless, it's also welcome that both sides are willing to give their arguments a public airing. As a public company, the stock exchange benefits from attracting as many listings to Hong Kong as possible. The SFC's role is to stand up for investors.
Besides, the short-term stakes may not be as great as they appeared when Alibaba decided to take its listing to New York. Lured by booming markets in China, more than a dozen US-listed Chinese companies have this year announced plans to take themselves private. Mainland exchanges also forbid dual-class shareholding structures, suggesting that valuations trump permissive corporate governance when companies are deciding where to list.
As China's capital markets open up, the challenge for Hong Kong will be to maintain its reputation as a relatively transparent and predictable financial market. The SFC has faced plenty of valid criticism for not policing some egregious market abuses more effectively. But by acting as a guardian of shareholder democracy, the regulator has show an encouraging willingness to defend Hong Kong's long-standing principles.
The SFC's verdict, agreed unanimously by its board, effectively ends a two-year debate that followed the rejection of the Chinese e-commerce group's giant initial public offering. Last week, exchange officials proposed allowing executives to retain voting control after an IPO, provided the company met certain criteria, was listing for the first time, and exceeded a certain size.
The SFC comprehensively demolished these caveats, pointing out that they involved subjective judgments, that bigger companies are no less risky, and that existing groups would try to find ways around the rules.
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Besides, the short-term stakes may not be as great as they appeared when Alibaba decided to take its listing to New York. Lured by booming markets in China, more than a dozen US-listed Chinese companies have this year announced plans to take themselves private. Mainland exchanges also forbid dual-class shareholding structures, suggesting that valuations trump permissive corporate governance when companies are deciding where to list.
As China's capital markets open up, the challenge for Hong Kong will be to maintain its reputation as a relatively transparent and predictable financial market. The SFC has faced plenty of valid criticism for not policing some egregious market abuses more effectively. But by acting as a guardian of shareholder democracy, the regulator has show an encouraging willingness to defend Hong Kong's long-standing principles.