Hong Kong Exchanges and Clearing Limited (HKEx) today (Friday) released a Discussion Paper on the Growth Enterprise Market (GEM). The paper invites market views on the possible further development of GEM.
Prior to issuing the paper, HKEx conducted numerous informal interviews with market practitioners and others involved in GEM. The views expressed in these interviews were very diverse.
Accordingly, the paper does not propose a solution for GEM at this stage. Rather, the paper summarises the more prominent comments of the interviewees, complemented by HKEx’s own statistical analyses of GEM and research on overseas experience of growth company markets. HKEx would like to seek further views and comments from the market before formulating specific proposals.
HKEx may not necessarily agree with all of these comments. HKEx is also mindful of the position of existing GEM-listed companies and their investors, and will take careful account of their interests when making any proposals. Such proposals would be subject to separate consultation.
Interviewees’ Comments
The comments of the interviewees that surfaced most prominently are summarised in the paper in the interests of public discussion.
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Need for a growth company board - Interviewees generally recognised the achievement of GEM, which in its six-year life has listed more than 220 companies that have collectively raised $45 billion of equity capital. Nonetheless, different interviewees held diverse and often strong views on the overall purpose and positioning of GEM. Some considered that GEM should be a fund-raising platform for small- and medium-sized enterprises (SMEs) in Hong Kong or on the Mainland; some considered that it should be a platform for companies with a growth theme to raise capital; others considered that it should be a stepping stone to the Main Board.
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Market quality – Interviewees indicated that although GEM had attracted some companies that had performed well, a considerable number had not, and the shares of these companies were often illiquid.
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Corporate governance and disclosure – Some interviewees suggested that GEM companies should be subject to a higher disclosure and corporate governance standard given their inherently higher risk.
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Regulatory approach – While some interviewees supported GEM’s “enhanced disclosure-based” regulatory approach, others called for higher admission criteria for GEM applicants and more merit-based screening through intensive review and vetting of listing applications and pre-vetting of announcements.
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Sponsors – Some interviewees were disappointed with the work of certain GEM sponsors and called for stricter enforcement of rules in relations to sponsors. |
Possible Structural Options
HKEx highlights three possible structural options for GEM based on the interviewees’ comments and on preliminary study of various overseas growth board experience. HKEx has an open mind about these options, and welcomes further comments on these or other possible options for GEM.
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GEM as a second board– Under this option, GEM would be a stepping stone for companies aiming to list eventually on the Main Board. The regulatory approach would be primarily the same as on the Main Board. The process of transferring to the Main Board would be streamlined as far as possible for qualified candidates.
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GEM and the Main Board to merge as a single board– Here GEM would be merged into the Main Board to form a single board. The merged single board could be an undifferentiated market (with or without a concessionary channel for the admission of growth companies), or would have two tiers of which the growth market would form the lower tier. Existing GEM companies would be grandfathered into this board.
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New alternative market– Under this option, GEM would be merged into the Main Board. Existing GEM companies would be grandfathered into the Main Board. A separate new alternative market for growth companies would be opened under an enhanced regime. The new market would be distinguished from the Main Board and would provide a listing venue where issuers are expected to stay for the long term. It could have a more flexible vetting regime but stricter sponsor regulation, and might be restricted to professional investors only.
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Next Steps
HKEx invites market users and interested parties to submit written comments on matters discussed in the paper no later than 30 April 2006. HKEx will consider the comments received and, if appropriate, formulate specific proposals and initiatives for GEM which will be the subject of a consultation paper at a later date.
The Discussion Paper can be downloaded from the HKEx website:http://www.hkex.com.hk/eng/newsconsul/mktconsul/marketconsultation.htm. Hard copies are also available from the HKEx office from 23 January at 12/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.
Written comments may be sent:
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(852) 2524-0149
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| By email to: |
GEMdiscussionpaper@hkex.com.hk |
HKEx’s submission enquiry number is (852) 2840-3844.