Annette Chau – South China Morning Post (A11, 08/23/2011)

Computers crash; that’s a fact of life. Even nine-year-old children on school computers are taught to back up their homework. For anyone, it can be a foolhardy strategy to put all your eggs in one basket, especially when it comes to IT.

Yet that is precisely what the Hong Kong stock exchange has done for the past four years by relying almost exclusively on a single website, www.hkexnews.hk, to announce listed companies’ information. Little wonder that cyber attacks on the website, which did not even affect trading platforms, pushed the Hong Kong Exchanges and Clearing into suspending trading two weeks ago. It was, said HKEx chief Charles Li Xiaojia, “a painful” decision. And it was local investors, and our reputation for financial stability, which paid the price. Trading on seven major stocks, including HSBC and Cathay Pacific, was suspended, causing big losses for Hong Kong investors during tense times of fiscal crises on both sides of the Atlantic. 

HKEx’s regulatory attitude is based on disclosure of information: the regulator ensures equal access to the market announcements of listed companies for investors to make informed decisions. Information channels are vital to achieve this. Such channels once included newspapers, but, since 2007, hkexnews.hk has become the sole platform for listed companies’ announcements. Li noted that, unfortunately, “retail investors [have] a habit of relying just on the HKEx news website”. It’s a monopoly which has made money for the HKEx for four years. It makes no sense to rely exclusively on a single information platform. True, this was the first time HKEx has suspended trading for technical reasons. But the cyber attacks were carried out in a surprisingly mundane way: a network of computers bombarding the website with traffic until it could no longer operate (not hacking in the usual sense). In theory, this could happen at any time, if enough people tried to access the website at once. That was all it took – for a single news website to go down – for trading to come to a halt – and for the world to wonder why the regulatory operation of Asia’s third-biggest stock exchange relies exclusively on one website.

The HKEx has since said it is in talks with Reuters and Bloomberg for them to distribute company announcements, so investors can still get information in situations where the website crashes. But this pernicious monopoly of information should never have existed. For the sake of the stock exchange’s financial stability, and most of all the investors it is meant to serve, we need a further step: allowing competing exchanges to operate in order to break the HKEx monopoly itself.

Annette Chau is an associate at the Lion Rock Institute