The CFA’s managing director for Asia Pacific, Paul Smith, yesterday urged the newly formed Asia Capital Markets Institute to pay heed to investors at its launch in Hong Kong.
Speaking during a panel discussion on professionalism and the business of taking companies public, Smith said sell-side market participants “would do well to listen to what’s happening on the buy-side at the moment because it’s undergoing significant transformation”.
The Asia Capital Markets Institute (ACMI) was created to promote professionalism, efficiency and innovation among capital market participants, by providing a platform for them to share best practice. As a multi-stakeholder organisation, it will examine issues such as due diligence and disclosure practices, as well as host workshops.
“You’ve got a decline in trust from the public in equity markets and you’ve got a new species of big beast amongst the buying world (sovereign wealth funds) … which is much more savvy and less prone to trust investment bankers and much more capable of doing its own due diligence,” said Smith.
Laurence Li, Temple Chambers barrister and Hong Kong Financial Services Development Council member, said that regulators were now taking a multi-pronged approach to supervising investment banks and the IPO process. "It’s no longer a quiet word from the regulator – it’s to court,” he said.
Li noted that just in Hong Kong in the past 12 months there had been three court actions against listed companies, a high-profile case against an auditing firm and one action against a sponsor over issues relating to IPOs.
A new IPO sponsorship regime was implemented in Hong Kong this October. It has resulted in increased due diligence for investment banks, the panel heard.
Brian Tang, ACMI’s managing director, noted that as well as increased due diligence, banks face greater liabilities and pricing pressure because there is “less money divided by more people.”
“It’s not the regulators place to protect your profit margin,” Smith said. “It’s your place to protect your profit margin, and the only way you are going to be able to do that is by demonstrating that you are professionals.”
In a separate address at the launch summit, James Shipton, executive director within the intermediaries division at Hong Kong's Securities and Futures Commission’s (SFC), lauded the ACMI for providing a forum to promote professionalism and reiterated the regulator’s recently expanded approach to supervising market participants.
The SFC has turned its focus to professionalism, corporate culture and ethics as part of a more principles-based and forward-looking approach to supervising market participants, as reported.
Prudential and market structure regulatory responses to the global financial crisis have not restored trust, said Shipton.
Although regulators have tackled capital requirements and introduced counterparty and market sector regulation, deep-seated ethical and cultural failings continue, he noted.
“Unless each and every component of the market is acting with integrity, you cannot achieve the goal of market integrity,” he said.
“We are keen to improve efficiency and reduce transactional costs and … to promote innovation to grow the pie, to benefit all key stakeholders; these include the buy-side, comprising institutional investors, long-only, retail and hedge funds, and private equity and owners who drive the entry and exit of listed companies,” said Tang in opening remarks.
ACMI invites participation from institutional, professional and retail investors and private equity and venture-capital practitioners.
Upcoming ACMI workshop topics include Hong Kong’s new IPO sponsor regime, effective due diligence, efficient banking deal execution systems and third parties and inside information.