H.K. Fails to Appoint New Securities Regulator
Hong Kong Fails to Appoint New Regulator as Wheatley Departs
Jerome Favre/Bloomberg
Martin Wheatley, the outgoing chief executive officer of Hong Kong Securities and Futures Commission, speaks during a news conference in Hong Kong, China, on Wednesday, June 8, 2011.
Martin Wheatley, the outgoing chief executive officer of Hong Kong Securities and Futures Commission, speaks during a news conference in Hong Kong, China, on Wednesday, June 8, 2011. Photographer: Jerome Favre/Bloomberg
March 2 (Bloomberg) -- Martin Wheatley, chief executive officer of the Hong Kong Securities and Futures Commission, discusses the outlook for Asian stock exchanges. Wheatley talks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Hong Kong failed to name a new Securities and Futures Commission chief, leaving the watchdog with an interim head as record share sales and the growth of yuan-denominated products spur calls for more supervision.
Alexa Lam, the deputy chief executive, will run the agency until a replacement is found, the regulator said. The new SFC head will need to review how initial share sales are sponsored and oversee the introduction of regulations for over-the-counter derivatives, said Martin Wheatley, who ended his tenure yesterday.
Under Wheatley, the SFC uncovered questionable disclosures among some IPO sponsors, pursued a crackdown on insider trading and brokered compensation for investors who lost money on securities linked to bankrupt Lehman Brothers Holdings Inc. The delay in naming a new regulatory head comes as Hong Kong attracts more shares sales from overseas and develops into an offshore center for China’s yuan.
“It’s a challenging job,” said David Webb, a member of the SFC’s Takeovers and Mergers panel. “If you are chief executive of the SFC, you need to stand up to political interests to pursue the mandate.”
Under Wheatley, the regulator faced opposition in 2008 from companies including Hutchison Whampoa Ltd. (13) when it sought to extend the period that directors aren’t allowed to trade in shares of their companies, Webb said.
‘Good Progress’
The Hong Kong government “is making good progress” in finding a replacement, said Terry Wong, a spokeswoman of the Financial Services and the Treasury. “An announcement of the result will be made as soon as procedural parts have been completed.”
Wheatley, who announced his departure as chief executive officer in December, left to lead the agency that will take over most of the powers of the U.K.’s Financial Services Authority.
He earned HK$9.09 million ($1.17 million) in 2010, according to the commission’s 2010 annual report.
The SFC in March identified lapses in the evaluation of applicants for initial public offerings, which reached a record $57.8 billion last year. While overseas companies like Prada SpA and Samsonite LLC are planning Hong Kong listings, Chinese companies accounted for 45 percent of the HK$21.9 trillion capitalization of the stock exchange’s main board as of the end of April, up from 16 percent in 1997.
The regulator may begin consultation on making sponsors legally liable for statements in their clients’ prospectuses in the third quarter, Wheatley said. It needs to revise the code of conduct for sponsors, he said.
Hontex, Tiger
The new head will also oversee lawsuits that the SFC pursued under Wheatley. The regulator is seeking to recover funds for investors after it accused Hontex International Holdings Co. of misleading information in its IPO prospectus.
The SFC is also seeking to ban Tiger Asia Management LLC, the hedge-fund firm led by Bill Hwang, from trading in the city and to restore alleged insider trading profits to investors.
“We’ve taken a much tougher line on market misconduct, market manipulation and insider dealing such that now Hong Kong has the credible deterrence,” Wheatley said at a press conference yesterday.
“We haven’t completed everything and certainly not everything I would like to complete. And there will be some challenges for my successor to take on.”
Hong Kong is introducing a new regime for over-the-counter derivatives, Wheatley said, rejecting a suggestion by U.S. Treasury Secretary Tim Geithner that markets around the world aren’t following the U.S. lead fast enough.
Withstanding Trauma
“The U.S. regulatory system has shown itself to be not best able to withstand the sort of trauma that we’ve been through in the last three years, whereas I think the Hong Kong system in many aspects has,” he said.
Under Wheatley the regulator won Hong Kong’s first jail sentence for insider trading, a court battle against billionaire Richard Li’s PCCW Ltd., and strengthened investor protection after the mis-selling of notes linked to Lehman.
China’s government has selected Hong Kong as the hub for promoting use of the yuan as an alternative to the dollar in global trade and investment. The city’s yuan trade settlements in the first quarter were 310.8 billion yuan ($48 billion), almost matching 2010’s total, according to the Hong Kong Monetary Authority.
Borrowers including Volkswagen AG and Unilever NV raised a record 65.3 billion yuan selling dim sum debt in the first five months of the year, exceeding the 35.7 billion yuan issued in all of 2010, according to data compiled by Bloomberg.
“Hong Kong’s bond market is growing rapidly, especially the yuan off-shore market, but the governance is still under development or under review,” said Danny Yan, a fund manager at Haitong International Asset Management, which oversees $600 million.
“This is a new product in the world that nobody has tested before, and it is the SFC’s responsibility to closely monitor,” Yan said.
To contact the reporters on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net
To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net
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