All right, I'm very pleased to
have today Laura Cha, who is
connected to us electronically,
live from Hong Kong.
It's 9 pm in Hong Kong.
Well, we've already talked about
Laura, she's one of the
most distinguished executives
in Asia.
She is on the Executive
Council of Hong Kong.
She's a director at HSBC, she's
served on the China
Security's Regulatory
Commission, and recently at
the National People's Congress
of China, which is a
remarkable set of
achievements for
someone, for any one person.
And I understand, that she is
the first Hong Kong citizen to
serve in the government of
the People's Republic.
But I guess, the really big
thing that comes to my mind
is, that HSBC is one of the
most important and biggest
banks in the world.
And I looked it up and I found
that five branch offices of
HSBC are within a few
miles of right here.
Anyway, Laura --
I'm looking at you there --
why don't you introduce
yourself, talk about what you
do, and what your thoughts are
about the financial situation,
and then we will turn it
over to questions.
LAURA CHA: OK.
First of all, good morning
to you all.
Thank you, Bob, for inviting me
here, via electronically.
It is my honor too have the
opportunity to talk to you.
When I was invited to give
this talk, I went on the
internet and saw that your
course syllabus is very
comprehensive, and I would
imagine that at the end of the
course you would have covered or
will cover just about every
aspect of the financial
markets.
And you will have a good idea of
the function of the markets
and how it works.
What I want to do in the next 20
minutes or so, is really to
give you an overview of what
it is like to work in the
financial markets, to have a job
in the financial market,
and perhaps, eventually, you may
want to have a career in
financial services.
And then, after that I would
be happy to answer any
questions that Bob, you,
or anyone of you want
to raise with me.
I think, when one talks about
a career or job in the
financial services,
one tends to think
about the private sector.
The banks, the investment banks,
the fund management
companies, and, of course, the
trading, the traders, both in
terms of stocks, futures,
options.
Of course, in the last decade,
hedge funds, private equity.
There's no question
that the private
sector is very exciting.
There's no question that a job
or career in financial
services in the private sector
is, by the most of any
standard, is very financially
rewarding.
But what I really want to talk
to you about, is the other
side of the financial markets,
which is the public sector
side, and I want to share with
you my own experience in the
public sector.
When one talks about financial
services, as I mentioned, we
talk about the banks -- the
intermediaries, what we call
the intermediaries --
the practitioners, people
who practice in
the financial market.
If you are a college graduate,
typically, if you go to one of
these firms, you start out
as a research assistant.
You do research.
If you are in a bank you will
learn to read, how to
interpret balance sheets.
How to decide, when people come
to you for loans, how you
evaluate them, and what is the
creditworthiness of the
potential client, whether
you should or
should not lend money.
If you go to work for a private
equity firm, you do
the same kind of research,
except
that it's for companies.
You will help the firm decide
whether a particular
transaction is worthy
to take on.
And in between, of course,
there are all kinds of
financial mechanisms, or tools,
products, as one would
say, that you devise, that the
markets devise to facilitate
these financial services.
And those have been covered in
your course, I can see that.
But, as I mentioned, the other
side of the financial
services, the other side of
the financial market, is
really the regulators.
The public sector side,
the policy makers, the
standard-setters, bodies such
as the Financial Accounting
Standards Board.
And all of these are the other
part of the equation, which
help to make the financial
market function well.
And it is important for the
public sector to have equally
bright students.
I think, some of us get
a little worried.
In the last decade, a lot of the
bright students, who want
to go into financial
services, all go
into the private sector.
The public sector is important,
because the
regulators and policy setters
help ensure that the market
functions in an orderly
fashion.
We want to make clear as
regulators and policy setters
-- we want to make sure that the
market not only functions
properly --
that the playing field is level,
that the rules are
clear, so that financial
service, and finance, can
indeed perform its function
in society.
And that's where, in the U.S.,
when we have the SEC, the
CFTC, the Fed, and of course
the exchanges, and, not to
mention, the Department of
Justice, the State Attorney
General's Office, et
cetera, et cetera.
What the public sector does,
is really to make sure that
people in the private sector,
in the banks, in the
investment banks, in the fund
management, and so on, they
behave properly, so that the
investors are treated fairly
and equally.
So that everyone is entitled or
is given in the same kind
of information, so that no one
particular group has an
advantage over the
other group.
And that's where investor
protection comes in, corporate
governance comes in.
And I myself --
my career has largely been in
the public sector side.
Although I started out
as a lawyer --
I was trained as a lawyer and
I practiced as a lawyer for
seven, eight years in Foreign
Direct Investment into China
in the '80s.
And I dealt with a lot of
multinationals on the
corporate side, on
the finance side.
My foray into the public sector
as a regulator came out
of the blue.
I was headhunted to join the
newly found Securities and
Futures Commission
in Hong Kong.
That was 1990.
And I thought, I would do it for
a couple years, learn to
broaden my horizon, and see what
it is like to be in the
public sector.
And I enjoyed what I did,
and I stayed 10 years.
And then, I was made an offer by
the central government, and
I went to work for the Chinese
regulator for almost four
years, and became the first
person outside of Mainland
China to join the Chinese
government.
So, I had a total of 14 years of
experience as a regulator.
And I have to say that it has
been hugely gratifying,
because as a regulator and a
policy setter I was able to
facilitate the development
of markets in Hong Kong.
In the early days, Hong
Kong was a --
in the early days, I mean in
the '70s and the '80s --
Hong Kong was largely
a local market.
The international players like
Goldman Sachs and Morgan
Stanley, they came and they
went, they took a look and
decided the Hong Kong market
was too small for them.
All that took a change in
1992, when the Chinese
government decided that they
want to use the Hong Kong
market as a way to help
transform or reform the
state-owned enterprises.
And by that time, I was already
at the Securities and
Futures Commission of Hong
Kong and because of my
experience working in the
Chinese market in the '80s, I
became the only person who was
the familiar enough with the
Chinese market to take on that
responsibility of really
designing a structure for
state-owned enterprises in
China to become listed companies
in Hong Kong.
And it was ground
breaking work.
At the time, we knew that
it was very important.
We didn't know how important
it would become later on.
Some 20 years later, the Hong
Kong market now is a totally
international market.
All the big players are here,
and more than half of our
market capitalization comes
from Chinese enterprises.
More than half of the turnover
on our stock exchange are from
Chinese related companies,
Chinese companies directly or
what we call ''red chips.'' So,
the coming of the Chinese
enterprises to Hong Kong really
transformed not only to
state-owned enterprises in
China, but also the nature and
stature of the Hong
Kong market.
I think today most people will
recognize that Hong Kong is an
important financial center.
And I would say that, without
the Chinese enterprises, we
would still have been a very
local market, because our
economy itself, Hong
Kong's economy, has
not been that big.
It really is what had happened
in China that has propelled
our change.
And as a regulator, I was
fortunate to have that
opportunity and to help
structure the market and
spearhead changes.
The other thing that I did as a
regulator in Hong Kong was,
in the late '90s, '98, '99, and
2000, there was a wave of
demutualizations of
stock exchanges
throughout the world.
And I helped demutualize the
stock and futures exchange in
Hong Kong, merged them together,
together with our
clearinghouse, and
we became --
the Stock Exchange of Hong Kong
became a listed company.
Today, as an exchange, it has
the largest market cap in the
world, more than the New York
Stock Exchange and the London
Stock Exchange.
And then, when I went to China,
the market was in the
nascent state, bearing in
mind it was a socialist,
communist-socialist, country.
Capitalism was the new thing and
stock market was an even
newer thing in 1991.
So, I kind of witnessed, and
then later on was fortunate
enough, when I went to work in
the Chinese government, to
participate in that grow
of the Chinese market.
And what I did in my almost
four years as a Chinese
regulator was to promote
corporate governance.
I introduced quarterly
reporting, the requirement of
independence of executive
directors, and it
was exciting times.
What I want to say really
is the public sector
work that would --
at least for me, I felt that
I was making a difference.
I was able to help the market
change, and if things were not
right, I felt that I had the
ability to make things right,
to make things correct.
Not always successful,
I have to say.
But what I want to really
impress upon you all is that,
while the private sector work
in the financial services is
extremely financially rewarding,
in the public
sector it's less so, but on a
different level, I think the
policymakers do perform
a social good.
And the good thing about the
United States is, there is a
lot of interchange between the
public and private sectors.
People do move from the private
sector to the public
sector, and back again.
I think that's what makes the
U.S. market vibrant, among
other things.
And I think, it is a tradition
that many other countries and
jurisdictions want to emulate.
Namely, the people, who have
been in the private sector,
who have the market experience
needed in the public sector.
In other words, you cannot have
regulators, who have very
little knowledge of how
the market works.
At the same time, those people,
who have been in the
public sector, have kind of
instilled on them the
discipline of an orderly market,
doing the right thing
for the market.
And that, when you have it
transplanted or being brought
back into the private sector,
it is also a good
thing for the --
and healthy for the
market as well.
The other thing that I want to
really talk about, other than
the public sector work, and as
a career choice or a job
choice in the financial
services, is really the
globalized nature of the
markets these days.
I think, in my days, when I was
going to college and law
school in the United States, the
U.S. was, and I don't mean
to say that it is no longer,
everybody looked to the U.S.
to be the center of the world.
Particularly in financial
services, everything happened
in the U.S., and to a large
extent it still does, but I
think the world outside
the U.S. has
undergone a lot of changes.
A globalized market means, that
today young people will
find equally interesting and
exciting work opportunities in
financial services outside
of the United States.
I think in my days, in the '80s,
certainly people, when
they say they want to work
outside the U.S., it would be
in a mature market like Europe,
the U.K. or Japan.
I think, increasingly more
so in the last decade,
opportunities in Asia and Latin
American in financial
services have become
very exciting for
young graduates anywhere.
And I would say, if you are
equipped as a young graduate
and you wanted a career in
financial services, I think
you should not rule out the
possibility of working in a
foreign country, in the emerging
market in particular.
I think, in an emerging market
you will learn, in a way,
faster, because you would be
given more opportunities, more
responsibility, at
an early age.
Your learning curve
will be steeper.
And it is also interesting, as
well as frustrating, I have to
say, working in a developing
market.
There are things that you think
that you can do, and
then there are things, that the
rules are not as clear,
and the environment and the
people around you are not as
sophisticated or educated
as you are.
But I think, in today's world,
the globalized market means
that the opportunities are
everywhere, and I think
particularly the emerging
markets will offer a lot of
opportunities.
Bob, I don't know whether this
is enough as an introduction
for us to carry on discussion,
or how do
you think about that?
PROFESSOR ROBERT SHILLER:
Yes, very good.
I'll turn and face the class.
I can't see you very well,
but I thought it was very
interesting hearing
your comments.
What particularly struck me
was your emphasis on the
public sector and about
regulators.
And it reminds me --
I visited the SEC once,
recently, in the U.S., and I
had lunch with people there,
in Washington.
And I found that a lot of them
had worked in the private
sector in the past, and I was
starting to wonder they
must've taken a big pay cut.
Why are you here at the SEC?
It crossed my mind, maybe
they're losers, maybe they
didn't make it in Wall
Street, they can't --
but when I talked with them,
I got a different idea.
Maybe they're here, because
they find all aspects of
finance exciting, and maybe the
purpose of life isn't to
make a huge amount of money.
So, I wonder if you agree
with my assessment.
I mean, why do people work in
the public sector anyway, if
pay is lower?
And that's a very open and big
question, maybe you have a
response to that.
LAURA CHA: I think, there are a
couple of reasons for that.
I think, one, that a career
in the public
sector need not be permanent.
You can work in the public
sector for a number of years,
and then go out into the
private sectors.
And your public sector
experience is hugely
marketable, if we could
use that term.
I know that, particularly
in the U.S., if you had
experience with the CFTC
and the SEC or the Fed
you are very --
I mean, provided that you're
not really just in the
technical aspect and you are
in the broad policy aspect.
I think that you have a very
marketable skill that people
in the private sector don't
necessarily have. If you
change jobs in the private
sector, one bank and another,
one private equity and another
hedge fund, they would be more
or less the same, but I think
in the public sector that's
where the difference is.
That's one.
The practical aspect
is, of course, it
is more steady work.
The financial --
how should I say?
Yes, the financial reward is
huge in the private sector but
also it is subject
to a cyclical --
when the market is down, there
are massive layoffs.
And the public sector is
a little more steady.
So, I think it could
be a different
phase in one's career.
A certain phase you might want
to have a more steady --
or you want to accumulate enough
experience before you
go out into the private
sector, or vice versa.
And I have seen, among my
friends, among the regulators,
some people felt that they have
made enough money, enough
is a relative term, they make
enough in the private sector
and they want to go in the
public sector for a few years.
I think that's also one
of the reasons.
PROFESSOR ROBERT SHILLER:
Listening to what you said, it
seems to me, in some sense,
working in the public sector
is an opportunity but also
maybe a mission.
When I'm thinking of what you
helped achieve for China, I
think it's a really important
mission in that you are
getting the financial markets
working right.
And the things you talked
about, like independent
directors on Chinese companies,
is a way of
combating the problem of
corruption -- you didn't use
the word corruption, maybe
that's too strong of a word.
But when things aren't
up an up.
And I thought that part of the
motivation that maybe --
I'm sure you have, and maybe
you can confirm this, it's
just a sense of being part of
history and part of making
things right.
LAURA CHA: Yes.
I think, absolutely.
When I became a regulator, I
thought it was just going to
be two, three years.
I was going to broaden my
horizon, and it would help my
career in the law, and then
just one thing led to the
other, and I found that
it was extremely --
how should I say?
It was very gratifying for me
to be in a position, where I
feel that I was really
participating in the
development of a market.
I'm sure, colleagues in the SEC
and CFTC feel the same way
in a different manner, because
obviously the U.S. market is
at a different stage.
And even among the regulators,
there are the people, who are
in enforcement, where they try
to catch the bad guys, the
insider dealing cases that
we see nowadays.
Those on the enforcement --
and of course the Department
of Justice, the Attorney
General's Office --
those people also feel that
there is a mission.
I think that's also a very
important aspect of a
financial market.
I just don't want young people
nowadays to think of financial
services as purely in
the private sector.
PROFESSOR ROBERT SHILLER:
Another of our outside
speakers in this course this
semester was Hank Greenberg,
who actually succeeded C.V.
Starr as the founder of what
was then the world's biggest
insurance company AIG.
And one of the things that he
told us was, how did AIG get
so successful?
Part of it was, because it
embraced the emerging world,
even when it wasn't
popular to do so.
AIG was founded in --
I think it was Beijing
or Shanghai
maybe, a long time ago.
And I thought that maybe he
and you have a similar --
it seems like the emerging world
is obviously more and
more a part of our economy
and will continue to be.
And that business being
connected --
we are getting more and more
international, as you were saying.
It kind of makes for
a different life.
One thing that AIG --
and Hank Greenberg emphasized
to us is, that he has a life
of diplomacy in some sense.
He became a diplomat, or like
an ambassador from the
business community, because to
work with all these different
countries requires a certain
sense of mission and purpose
and skills.
And I don't know if this is a
well-framed question, but it
seems like what you were saying
implies an interesting
career in the emerging world and
a career that involves a
broad scope of skills, not just
narrow finance skills.
Does that prompt you?
LAURA CHA: Yes.
I very much agree with Hank
Greenberg's view.
I think, when you work in an
emerging market or you work in
emerging markets, you develop
a different set of skills.
And I think, in today's
globalized world there are
more and more multicultural,
global professionals.
I think, we're talking about
20, 30 years ago, U.S.
expatriates, for that matter,
any other expatriates from the
U.K., for example, would go out
to the emerging market.
And people kind of use it as a
stint, you work for five, six
years, and you go back to your
homeland, and your roots will
be in your homeland.
Which is perfectly fine.
And that's what most
people do.
But I think in the last decade,
I have seen and I have
come across more and more young
professionals who --
because of the education and
because of the background what
I would call global
professionals.
They're multicultural, many of
them are multilingual, and
they will move job to job
in the overseas market.
And people look upon it
as life's adventure.
You live in a country for five,
six years, and then you
move on, and the skills that
you acquire along the way
really enrich yourself.
Enrich oneself, and eventually,
if you do go back
or not go back to your homeland,
it is some skill
that will stay with you and
change your perspective.
And I think that kind of skill
is becoming increasingly
important, when we have more
and more cross-border
transactions, and globalized
markets, where, when something
happens in one market,
it has an effect
way beyond the borders.
And that's what we're seeing
more and more nowadays.
PROFESSOR ROBERT SHILLER:
I was going to ask
the class for questions.
While you're thinking for a
moment, let me ask one more
question of you.
LAURA CHA: Sure.
PROFESSOR ROBERT SHILLER: I
just wondered about HSBC,
which is of another bank, like
AIG, it originated in Hong
Kong and Shanghai, but it has
become such a world force.
And I kind of wondered,
when did that happen,
how did that happen?
Can you give us a nutshell,
because it doesn't happen to
every Asian bank.
LAURA CHA: HSBC started in Hong
Kong in 1865, and within
a few months the Shanghai
branch was
set up the same year.
So, we've been here
160 years or so.
Originally it was trading --
dealing with trade finance
and so on.
And it became the largest
bank in Hong
Kong over many decades.
And the international push
really started in the early
'90s, when HSBC started
acquiring different banks.
It acquired the Marine Midland
Bank in the U.S., and it
acquired the Midland Bank in the
U.K. And from a bank, from
a financial institution, which
was largely local in Hong Kong
with businesses in Asia, it
became an international
organization by acquisition.
So, the head office moved from
Hong Kong to London, I think,
around '92, '93, when HSBC
acquired the Midland Bank in
the U.K., and the Bank of
England required the HSBC to
have the domicile in London
to be regulated
by the Bank of England.
Since the '90s, the HSBC had
acquired one of the largest
banks in France called CCF, it's
now called HSBC France.
It has acquired Bank of Bermuda
in Bermuda, and it has
made a lot of acquisitions.
Of course, the most famous, or
infamous, acquisition in the
U.S. was Household Finance
about 10 years -- less
than 10 years ago.
So, HSBC became an international
financial
institution really in
the last, I would
say, 15 to 20 years.
Now, today, 1/3 of our profit
comes from Hong Kong, 1/3
comes from the rest of Asia,
25% or so from the U.K. and
Europe, the U.S. is
about 6% and Latin
America is about 9% roughly.
So, Asia is a hugely important
market for HSBC, and the
acronym is Hong Kong and
Shanghai Banking Corporation,
which was the original name when
we were set up in 1865.
So, we do not have a controlling
shareholder, we
are truly diversified in
our shareholder base.
A larger shareholder holds
no more than 3% to 4%.
It is an institutional investor,
so they represent
many smaller investors.
So, it is really run by the
management, professional
management, and it has done a,
I would have to say, a very
good job in the last
two decades.
PROFESSOR ROBERT SHILLER:
OK, any other --
STUDENT: Hi, thank
you for coming.
I was just curious, a lot of
people have mentioned that the
lack of regulation and
enforcement of contracts is a
main barrier to foreign
investment
in Asian bond markets.
How do you think China will
address this, and what are the
primary differences in the
regulation between China and
the United States?
LAURA CHA: Can you say
your question again?
I didn't catch it.
I only heard regulation,
can you tell me
your question again?
STUDENT: Yes.
Many people have mentioned that
the lack of regulation
and enforcement of contracts is
a main barrier to foreign
investment in Asian
bond markets.
How do you think China
will address this?
LAURA CHA: How do
I think what?
STUDENT: How will China
address this issue?
The lack of regulation.
LAURA CHA: Right, I think China
does not have a lack of
regulation.
There are lots of regulations
in China.
What I would say is, that
there has to be better
application and enforcement of
regulations, rather than
periodic and not consistent
regulation.
I think one of the most
important things for the
market in terms of regulation
is, that they have to be
clear, they have to be
consistently applied, and they
have to be fair.
It is not a lack of regulation
that is the major problem.
I think, as in many emerging
markets, China is still trying
to cope with the issue of
stringent enforcement.
And I think, the regulators in
China recognize that there's a
lot that they need to do
better in terms of
enforcement.
And the problem that I see
in China is, that it is
developing so fast, the market
is way ahead, developing
faster and quicker and bigger
than the government and the
regulators have anticipated.
If we put ourselves back in
the U.S in, let's say the
crash of the late '20s, and
when the SEC was set up in
1934, I would say, China is
probably slightly better than
the U.S. in those days.
But if we compare with the
development of the U.S. market
in the last five decades or so,
of course, the U.S. has
developed a lot more, and China
does not have the luxury
to wait 50 years for
its rules and
enforcement culture to develop.
And it is catching up.
Whether the lack of regulation
is therefore an impediment to
foreign investment, I think
you'll have to look at it from
several angles.
China to date is the largest
recipient of foreign direct
investments, so, in a way, if
the conditions in China are so
bad, it would not have attracted
so much foreign
direct investment.
I'm not saying that the
environment in China is really
top notch, compared with the
developed markets, but there
are probably enough
opportunities, and people do
make enough money, so that it
is by statistics the largest
recipient of foreign
direct investment.
And that is a fact compiled
by international agencies.
So, I don't think that it has
been an impediment, it is an
impediment when we talk about
individual cases, it is far
from satisfactory.
PROFESSOR ROBERT SHILLER:
Can I just
interject a question there?
Some people say that the SEC in
the United States could use
much more resources.
Does China give enough resources
to enforcement?
It seems to me that there is a
problem in emerging countries,
or everywhere, that
it's expensive.
And the country has a budget,
right, which is still
attracted to other things.
So, do you think that China
devotes enough resources to
enforcement?
LAURA CHA: I think that every
regulator would tell you, that
they need more resources
as far as
enforcement is concerned.
I think China could certainly
do with more.
I think one aspect is that you
have to have enough people to
carry out enforcement.
And it is trying to catch up.
And, as I said, because the
market is developing so fast,
that the regulators are always
trying to play catch up, and
that is not ideal.
I think the SEC could do with
more resources, I would
absolutely agree with that.
Any regulators you go to, they
always felt that the
under-resourced aspect
is the enforcement.
PROFESSOR ROBERT SHILLER:
Other questions?
Right here.
STUDENT: I was wondering, if you
think that there are any
impediments to development in
the Chinese or Hong Kong
markets based on the government
of China.
You mentioned earlier that
there was a communist
tradition, and that a lot of the
businesses that you worked
with were state-oriented
or state-owned.
So, I was wondering, if you
think that that will have to
change in the future, or if the
market will change or in
some way adapt to allow
those to continue to
operate as they do now?
LAURA CHA: Do you mean the
state-owned enterprises?
When you say impediment,
what you mean by that?
STUDENT: You mentioned that
there was a tradition of
communism and state-owned
enterprises, that a lot of the
businesses were a little bit
weary of a capitalist system,
and that you played a pivotal
role in introducing that idea
and really implementing it.
Do you think that type of
change will continue?
LAURA CHA: Very much so.
I think capitalism has taken
deep root in China already.
If you go to China nowadays,
the state-owned enterprises
very much operate as any
other enterprises.
The difference is that the
controlling shareholder is the
state, is some sort of
government entity.
But it operates, if you look
at some of the larger
state-owned enterprises, like
China Mobile, Petrol China,
China Telecom --
they are still state-owned
enterprises, no question,
because their majority
shareholder, their controlling
shareholder, is the state,
but they operate in
a commercial way.
Of course, some people would
say that there are policy
preferences, advantages, to
being state-owned enterprises.
But I think, by and large, now
the state-owned enterprises,
particularly those that are
listed on the exchange and
some of those are listed in the
U.S. market as well, they
do have to operate in a
completely commercial manner.
They have shareholders
to answer to
other than the state.
They have minority shareholders,
who are public
shareholders, and I think that's
where the discipline
comes in, the market discipline
comes in.
So, when you say, whether any
change will take place, change
has already taken place and will
continue to take place.
PROFESSOR ROBERT SHILLER:
Is there another --
Let me just add something.
It occurs to me that, at least
in the U.S., there has been a
policy going back to the 1930s
of trying to encourage little,
start-up companies.
We created the Small Business
Administration, which
subsidizes -- the idea has been
that big things grow out
of small beginnings.
I wonder if you could
comment on China.
Does China support young
start-ups adequately?
LAURA CHA: It does.
It has been now two years, since
the Growth Enterprise
Board has been set up in the
Shenzhen Stock Exchange, what
we call the ''gem board.'' And
it has lower listing criteria,
and that is more or less a
''buyers beware'' market.
I mean, it is like any other
''buyers beware'' market, it's
fraught with a number of high
profile, high PE companies,
which may or may not develop
into something more concrete.
But I think the idea is to use
the capital market to nurture
the small business, that's the
growth enterprise market.
Shenzhen Stock Exchange, which
is across the border from Hong
Kong, also has a --
part of it's board is called
Small-Medium Enterprise Board.
So, if you are not a growth
company but you are a small-
or medium-sized company,
then you are listed
on this other board.
So, there are two specific
boards addressing exactly the
question you raised, namely to
nurture the smaller companies.
STUDENT: Hi, could you give a
couple of examples, maybe, of
the skills you learned in the
public sector that helped you,
now working at HSBC, or maybe a
situation, where, because of
what you learned in the public
sector, you had a better
decision making?
LAURA CHA: That's
a good question.
I think, what I took away most
from my years as a regulator
is really to look at an issue
from the macro level.
I think in the private sector,
when you are given a problem,
when you are, let's say, in a
private firm, in a bank, or a
law firm, or any professional
firm, you're given a set of
problems, perhaps a client has
a certain problem, and your
role is to help solve
that problem.
And within the contacts of that
client alone, and in the
confined of that problem.
And most of the time, you help
the client to overcome some
either legal issues or other
commercial issues, so that the
client can get to where
he wants to go.
Whether it's acquisition or
merger or disposal, et cetera.
In the public sector as a
regulator, how you learn to
look at the issue that is
presented to you from a more
macro level in the sense that,
how does this particular issue
impact on the market
as a whole?
I'll give you an example: A
group of companies in Hong
Kong came to the regulator in
Hong Kong and asked for
certain exemptions.
The reasons that they put
forward are quite cogent and
not unreasonable from the
client's point of view, from
the company's point of view.
Now, if I were in my role as a
lawyer, I would fight very
hard for the client to get
that exemption, but as a
regulator I have to look
at what does this --
if I give the exemption
what kind of knock-on
effect will it have?
Will it set a precedent?
And is it a good precedent?
Or is it not a good precedent?
If it is a good precedent, then
it should not be just
given to this one particular
company.
Then, perhaps rules should be
amended in such a way, that
what this client, what this
particular group of company
wants, should be given
to everyone who wants
to apply for it.
But if it is not, and if it is
just purely for the benefit of
this one particular group of
company, then you really
should not give in to
that exemption.
And you have to recognize
that there are different
considerations, such as the size
of the group, the impact
that it may have on the
market, et cetera.
So, the skills that one learns
as a regulator is really to
look at the problem presented
you from a more --
at a higher level, you look at
the entire scenario and how
this piece would fit into a
bigger picture, whereas in the
private sector you
don't need to.
And how it's helpful to me now,
in my current position,
is that I am able, I think,
to interpret policy and to
anticipate policy, because I
could see that certain things
are happening a certain way that
those are the issues that
the regulators are likely
to address.
And therefore, from the private
sector we should be
prepared for the changes
that will take place.
So, that's in a very
abstract way.
I can't quote you exact examples
for obvious reasons,
but that is --
In a nutshell, I certainly find
it helped me as a person
to look at matters from a
broader point of view.
STUDENT: Hi, thank you.
You spoke about the
demutualization of stock exchanges.
And one of the outcomes you're
seeing of that is the mergers
and acquisitions of stock
exchanges themselves.
And I think, in the last one
year itself we've seen a whole
bunch of very interesting
deals, Singapore and
Australia, New York and Deutsche
Boerse, et cetera.
And one of the one's that really
caught my attention was
the Shanghai-Brazil link-up.
So, perhaps I want to hear your
views on, do you think
this wave of tie-ups is going
to carry on, and if so, what
form do you think it will take
in the coming years?
LAURA CHA: I think in that last
decade, the exchanges
around the world have
really taken on --
or more than a decade
now, the landscape
has completely changed.
It used to be, an exchange
is kind of
like a national symbol.
Each nation has it's own
exchange, and that is almost
like a national --
how should I say?
It's a utility that cannot
be taken over
by a foreign country.
We saw that went by the wayside,
when the New York
Stock Exchange acquired
Euronext, and of course NASDAQ
have alliances, and just
different ways.
And now we're into a second
phase, where these already
consolidated and aligned
exchanges are forming even
more consolidation.
That may or may not happen,
there's a lot
of talk about it.
And I think, what drives this
latest wave of exchange
acquisitions and alliances are
really the easy end, the
electronic networks, that are
driving the cost of trading
down, that leave the larger
exchanges like the NYSE --
a lot of the volume has gone
to the easy end, and they
really have to align with others
to get the business up.
The other is products.
I think the merger of exchanges
will only make sense
when there are mutually
complimentary products.
And geography also
makes sense.
And how will I see
the outcome?
I think, many markets still look
upon their exchange as a
national symbol and they do not
necessarily want -- it's
more a matter of the local
politicians' sentiment, rather
than looking at the commercial
side and looking at the
political side.
Someone once told me about this
Singapore and Australian
stock exchange --
the pending merger that
has been announced --
I don't have the latest, I don't
know whether it's going
to go through.
Somebody in Australia told me,
well, it is almost like Qantas
being taken over by Singapore
Airlines.
In the commercial world, well,
if that makes sense, why not?
But I think, there is still a
lot of sentiment that a stock
exchange is something
very national.
So, I don't know how that will
play out, because all these
mergers are subject to the
votes of the local
politicians.
And so, they may have different
considerations than
just purely the commercial
side.
STUDENT: Hello.
Hi.
Thank you for your time.
I have sort of a two-part
question.
The first part, in regards to
all these Chinese companies
that are registered overseas,
that sort of complicates the
regulations, so I was wondering,
if you could talk
about Chinese companies being
registered overseas and being
listed in overseas exchanges.
And the second part, the
question is, I've heard, at
least I've read that there's a
new international board that's
being set up in China to
encourage these companies to
come back to mainland
China or Hong Kong.
So, I was wondering if you could
talk a little bit about
how it's going to be shaped,
some of it's challenges, and
what do you think would be most
important for success?
LAURA CHA: OK.
The first part of your question,
Chinese companies
that are registered overseas
and listed overseas.
There is no rule that forbids
Chinese companies to be
registered anywhere.
I think, let's say a company
in China, they can elect to
register themselves in Hong
Kong, in Bermuda, Cayman
Islands, wherever,
U.S., Delaware.
And the matter of listing is
really up to the issuer
itself, if they decided that a
listing in the U.S., whether
it's NASDAQ or the NYSE, makes
sense, that's where they would
list. And once they are listed,
they are subject to
the rules and regulations of
the SEC just like anybody
else, just like any of the
other foreign companies.
So, I think the place of listing
really determines the
kind of rules that would be
applied to that company.
Once a company is listed, let's
say on the New York
Stock Exchange, then the U.S.
rules will come in, and
whether it is a Chinese company
is kind of irrelevant.
It will have to be complying
with the U.S. rules just like
everybody else.
So, that's the first part of
your question, I don't know
whether that answers it.
The second part of your
question, about the
international board
in Shanghai.
Yes, there has been a lot of
talk about the Shanghai Stock
Exchange setting up an
international board.
Meaning a board, where companies
registered outside
of China such as the red chips,
which are not listed in
China, would return to the
Shanghai Stock Exchange.
Because they are not registered
in China, they are
therefore not a Chinese company,
they are therefore
kind of like a foreign
company, because they
registered in Hong Kong or
Bermuda or wherever.
The idea of the international
board is to attract not only
these types of Chinese companies
that have been
registered outside, but for
companies, that are
multinationals, that are already
listed in the outside
market, to be inside China.
And the major reason that I can
discern is, one, to give
the Chinese investor a wider
variety of products.
Because the renminbi is still
a non-convertible currency,
the vast majority of Chinese
investors can only invest in
the domestic market, only in the
Chinese companies that are
listed there.
They cannot easily invest in,
let's say Microsoft, HSBC,
IBM, General Motors,
et cetera.
So, I think the Chinese
government has thought, well,
maybe we can bring some of the
companies to China, for these
companies to raise capital and
issue shares in China, so that
the Chinese investors will
be able to asses it.
The second part is really to
raise the profile and the
standard of the Shanghai
Stock Exchange.
The Shanghai Stock Exchange
has ambition to be an
international financial
center.
Domestic documents have said
that they should be developed
into an international financial
center by the year 2020.
And one of roots of reaching
that goal is to have an
international board for
international companies, and
that is, what, I think, the
Shanghai government and the
Shanghai Stock Exchange
are setting out to do.
But to date, the rules have
not yet been promulgated.
We don't know when it will.
I was a delegate to the National
People's Congress,
and we met in March
[addition: 2011],
earlier this month, and there's
no discussion or
timetable that has been set.
Many people think, it would
be a good thing.
Some people inside China think
that it will not be such a
good thing, because it will
divert the savings to foreign
companies, but I think most
people think that it will be a
good thing for China.
So, I don't know whether that
answers your question.
Do you have a second part
to the second question?
I might have missed it.
STUDENT: No, I think that really
answered my question.
But the first part, actually
the reason why I asked the
first part of the questions
was, because a lot of the
recent frauds that came up
happened or were discovered,
because a lot of Chinese
companies registering with the
New York Stock Exchange had a
filing with the SEC, whereas
they also have a filing for
their own government, the
Chinese government.
And then these filings for their
annual reports, their
numbers, would not match.
And I just thought, there
would be some kind of
complications in terms of
regulation, when the
government's regulating
these companies.
LAURA CHA: I think that,
whenever a company is listed
on a foreign market, it is
subject to the full rules and
regulations of that market.
There is no if's and but's.
I think, the U.S. authority
would take action against any
fraud or misstatement.
PROFESSOR ROBERT SHILLER:
OK, right here.
STUDENT: What type of law did
you study, and how difficult
did you find the transition from
the legal world to the
business world?
LAURA CHA: In law school, I
took a lot of courses in
corporate law, tax,
corporate finance.
I think the business world
always interested me and the
transition from law to --
I think it was a
two-step thing.
I was a lawyer, and then I was
a regulator, and then I am
completely in the private
sector now.
So, the transition from a lawyer
to a regulator wasn't
that difficult.
I remember distinctly that,
when I moved over to the
Securities and Futures
Commission, what I wasn't used
to was, I always wanted to
correct every document that
came before me, I wanted
to improve it.
I mean, it was just
the lawyer in me.
I wanted to make it written
better, clearer, et cetera.
And then, I had to kind of
restrain myself, because I
wasn't there to correct and make
a presentable document,
but to really solve
the problems.
And then, having been a
regulator and mostly really
regulating the corporate world,
I became quite familiar
with the corporate
finance side.
And when I was at the securities
and futures
commission in Hong Kong, I was
the head of the corporate
finance division for five years,
and during that five
years I came across all kinds
of corporate transactions.
Mergers and acquisitions,
takeovers, and of course the
IPOs, so that kind of helped
me in where I am today.
I wouldn't really call me a
banker per se, because I'm not
in the operation side, I'm on
the board, and I provide
advisory service to HSBC, but
I'm not really operating as a
banker per se.
So, I would say it wasn't
difficult, it was an
evolution type of --
throughout my career from
one thing to the next.
[SIDE CONVERSATION]
STUDENT: Hi, I was wondering,
having worked on the
regulation side and, now
working for the private
sector, I think that puts you
in a unique position to
determine what the impact of
internationalization of
regulation will have on the
financial services sector.
So more specifically, what do
you think the regulatory
impact of Basel III will be?
Because a lot of private sector
individuals have come
out and said that some of the
requirements, in terms of the
capital adequacy requirements
and so on,
have been very harsh.
So, first of all, I guess, how
do you think it'll be phased
in and, second of all, do you
think it's the appropriate
level of regulation?
LAURA CHA: Basel III,
I think, it is
very costly to implement.
I think, the banks have largely
accepted that more
stringent regulations will have
to come our way because
of the financial crisis
of the last two years.
But not all banks are alike, and
certainly at HSBC we felt
that we have been thrown in with
the rest of them, whereas
we had not taken any government
money and we have
done reasonably well, we have
weathered the crisis
reasonably well.
But having said that, I think
one has to accept that,
whenever there's a crisis,
regulation will come in more
stringently, and the pendulum
will tend to
swing too far one way.
And then gradually, the pendulum
will come -- in the
boom market, then the pendulum
will swing back, and then it
would be too lax, and then
another crisis will happen,
and then more rules
will come in.
It has always been like that, if
you look at the history of
any market, they always
swung to the extreme.
Sarbanes-Oxley, I think,
is a good example.
Sarbanes-Oxley came about, I
don't need to tell you, as a
result of the Enron crisis.
And of course the last crisis,
which was the subprime crisis,
was nothing like Enron.
When I was a regulator, we
always said, we're always
correcting yesterday's problems.
When a scandal
happens, when a crisis happens,
we think of rules to
address what had gone wrong,
but the next time something
happens it's not going to
happen the same way.
You are preventing the old
problem from repeating itself,
but the new problem will
be entirely different.
So, that's just the
way things are.
And that's the other reason, why
I think some of the young
and bright students should
not always be
in the private sector.
The public sector needs
a balance of that.
And then, as far as
international regulations are
concerned, the regulators have
talked for a long time about
harmonization of standards.
I don't think it will happen,
because different regulators,
different national regulators,
have their own priorities, and
they don't always have
the same priorities.
And the best example is really
the Financial Stability Board,
which came out of the last
Asian financial crisis.
It was called Financial
Stability Forum, it is now a
Financial Stability Board, and
the idea is to ensure that
there is financial stability
globally, but that
takes a lot of work.
I think, the G-20 is trying very
hard, and of course the
regulatory agencies as well as
all the central bankers are
now hopefully in a better
cooperative mood, but I think
to have one set of international
and harmonized
standards is very hard.
PROFESSOR ROBERT SHILLER: OK,
I think we're out of time.
Laura, I just want
to thank you.
I think this was very good.
Hearing the details of your
career, and hearing all the
different things you've done in
both the public and private
sector reminds me of --
we're going through a period
of development of the world
and expansion, and somebody has
to get the details right.
And I'm very impressed that you
are one of those people
who's making things work.
So, I'm glad that you were able
to convey these thoughts
to our students here today,
and thank you very much.
