Moving the Goalposts: Financial Market Regulation in Hong Kong and the Crash of October 1987

The article examines the operation of the Hong Kong stock and futures exchanges during the crash of October 1987 and in particular the controversial decision to close the exchanges. It argues that the closure decision exposes a serious conflict of interest and abuse of power on the part of the major decision makers and fundamental flaws in Hong Kong's self-regulatory system. Moreover, these events raise broader questions about the strengths and weaknesses of different regulatory regimes and about the value of different theoretical explanations of regulatory behavior. In particular, it is argued that the most influential theory concerning the regulation of financial markets—that of certain Chicago School economists—raises as many questions as it answers, and that an alternative view which locates cultural and organizational factors at its core provides a more satisfactory explanation of the events of October 1987.