* Former co-head of IPO vetting team Yeoh arrested - sources
* Watchdog reviewing how exchange administers listing (Adds context, quote from activist shareholder)
By Alun John and Clare Jim
HONG KONG, June 26 (Reuters) - Hong Kong's anti-corruption watchdog said on Wednesday it had arrested a former senior figure at the Hong Kong Stock Exchange operator for suspected misconduct linked to two IPOs.
The former official and two associates were arrested for "suspected corruption and misconduct in public office in relation to the vetting of listing applications of the two listed companies," the watchdog said in a statement.
The arrest comes as the exchange gears up to host a couple of multi-billion dollar initial public offerings (IPOs) later this year, aiming to cement Hong Kong's standing as a premier listing venue.
HKEX was the world's top IPO destination last year with $36.3 billion raised, according to Refinitiv data.
Regulators have stepped up a campaign to weed out wrongdoing during listing processes by tightening rules and imposing fines on global banks for flouting listing guidelines.
Hong Kong's Independent Commission Against Corruption (ICAC) did not name the individuals arrested, but said they included a former joint head of the IPO vetting team of Hong Kong Exchanges and Clearing Ltd's (HKEX) listing department.
Two people with knowledge of the matter said that the former senior HKEX official arrested was Eugene Yeoh, who served as co-head of the IPO vetting team until earlier this year. One of the people said that Yeoh was arrested at the Hong Kong airport when he was about to leave the territory.
Yeoh did not respond to LinkedIn messages seeking comment, and Reuters did not immediately have details to contact Yeoh directly. The legal representative of Yeoh was not immediately known.
Yeoh's arrest was earlier reported by Hong Kong media and by Bloomberg.
Following the arrests, the Securities and Futures Commission (SFC), Hong Kong's securities regulator, said it was reviewing the manner in which the exchange dealt with listing and other matters potentially relevant to the investigation.
ICAC said in a statement that it had searched the offices of two firms that sponsor, or lead, IPOs and two listed companies on Sunday, and had made three arrests. HKEX cooperated fully during its operation, it said.
The ICAC is not investigating HKEX or any other employees, the exchange said in a statement, adding it had taken the matter "very seriously."
"Those in the listing department have the paramount responsibility to protect ordinary investors. It would tarnish the reputation of Hong Kong if the allegations are true," said Louis Tse, managing director asset management at Hong Kong-based financial services firm VC Group.
Companies that wish to list in Hong Kong must be judged suitable before they are allowed to do so. For main-board companies, the suitability decision is made by an independent listing committee, but for companies listing on the second board it is made internally by HKEX.
David Webb, an activist shareholder in Hong Kong, said assessing listing suitability involved a high degree of subjectivity. (Reporting by Alun John and Clare Jim; Editing by Sumeet Chatterjee and Stephen Coates)