Hong Kong Exchanges and Clearing Limited (HKEX) and its subsidiary The Stock Exchange of Hong Kong Limited (the Exchange) today launch a consultation to seek public feedback on a package of proposals to broaden capital markets access in Hong Kong and strengthen Hong Kong’s listing regime through two separate papers:
- the New Board Concept Paper; and
- the Consultation Paper on the Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules
These papers contain proposals that are the result of a holistic review of the Hong Kong listing framework aimed at widening capital markets access by opening up to a more diverse range of issuers, improving the quality of the Exchange’s markets and enhancing Hong Kong’s competitiveness as a global financial centre.
New Board Concept Paper
While Hong Kong has been the number one market globally for initial public offering (IPO) funds raised in five of the past eight years, there remain gaps in the Hong Kong market, prompting a number of Mainland and other high growth companies from New Economy sectors to choose to list on venues other than the Exchange.
The proposals contained in the New Board Concept Paper are designed to enhance Hong Kong’s ability to attract companies from New Economy sectors with one or more of the following characteristics that currently prohibit them from listing here:
- pre-profit companies;
- companies with non-standard governance features; and
- Mainland Chinese companies that wish to list on the Exchange as a secondary listing venue.
The New Board would be divided into two segments to enable the calibration of shareholder protection standards based on the level of perceived risk in each segment: New Board PREMIUM and New Board PRO.
New Board PREMIUM would be open to retail investor participation and, accordingly, a regulatory approach similar to that of the Main Board would apply. New Board PRO would be open to professional investors only and would provide a “lighter touch” approach to initial listing requirements.
The New Board would feature an accelerated delisting mechanism for both segments to help ensure ongoing quality.
Review of GEM and changes to GEM and Main Board Listing Rules
The Exchange proposes changes to its rules for the Growth Enterprise Market, or GEM, which seek to address recent market and regulatory concerns regarding the quality and performance of applicants to, and listed issuers on, GEM. These include concerns about price volatility of GEM securities post-IPO, whether there is an open market for all GEM listings and the possible exploitation of GEM as a means of achieving a Main Board listing without a commensurate due diligence process at the relevant time. The proposed changes to the Main Board Listing Rules also ensure that there is a clear distinction between the Main Board and GEM.
The GEM review and changes to GEM and Main Board Listing Rules consultation paper, which has been approved by the Listing Committee of the Exchange pursuant to its regulatory mandate, considers four key areas:
- GEM’s position as a “stepping stone” to the Main Board;
- GEM’s admission requirements and delisting mechanism;
- the open market requirement for GEM companies; and
- eligibility requirements for the Main Board.
Key provisions of the proposals on which the Exchange is seeking public feedback are:
- the removal of the streamlined process for GEM transfers to the Main Board;
- transitional arrangements lasting three years for existing listed GEM companies and those that have already submitted a valid application for listing on GEM (and subsequently list), to minimise the impact on them of the removal of the streamlined GEM transfer process;
- an increase in the minimum expected market capitalisation of GEM applicants from $100 million to $150 million and a corresponding increase in the minimum public float value of a GEM company from $30 million to $45 million;
- an increase in the minimum expected market capitalisation of Main Board applicants from $200 million to $500 million and a corresponding increase in the minimum public float value of a Main Board company from $50 million to $125 million (25 per cent of $500 million);
- an increase in the cash flow requirement for GEM applicants from $20 million to $30 million;
- the introduction of a mandatory public offering requirement of at least 10 per cent of the total offer size for all GEM IPOs; and
- an extension of the post-IPO lock-up requirement on controlling shareholders from one year to two years for GEM and, where appropriate, the Main Board.
The Exchange invites broad market feedback on the proposals contained in the two papers. The public comment period for both papers is two months and the deadline for responses is 18 August 2017.
While the proposals are in separate papers, they are interlinked and should be viewed holistically.
Hong Kong has been a world leader in IPO fundraising over the past decade, but we cannot be complacent and assume our success will continue,” HKEX Chief Executive Charles Li said. “The world economy is changing fast. We must stay competitive, stay relevant, and continue to enhance market quality. Our consultation today focuses on all of these objectives. We encourage everyone to submit their views to shape the future of Hong Kong.
We are proposing changes to the GEM and Main Board Listing Rules to ensure they reflect current standards in the market, and to address recent concerns about the quality and performance of some GEM applicants and listed issuers,” said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing. “We envision GEM continuing to have an important role in our market as a capital raising platform for small to mid-sized companies.