Consultations on “The New Board Concept Paper” and on the “Review of The Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules”

The Stock Exchange of Hong Kong Limited (“SEHK”) issued two consultation papers on 16 June 2017 respectively on “The New Board Concept Paper” (“New Board Paper”) and “Review of The Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules” (“GEM Paper”).

The New Board Paper introduced the proposal of setting up a new listing board in Hong Kong (“New Board”) under SEHK to accommodate companies that are currently not eligible to be listed in either the main board of SEHK (“Main Board”) or Growth Enterprise Market (“GEM”).

Under the proposal, the New Board will be divided into two segments, namely, “New Board PRO” and “New Board PREMIUM”. New Board PRO will be targeted at earlier stage companies that do not meet the financial or track record criteria for GEM or the Main Board. It will only be open to professional investors, and accordingly it will adopt a “lighter touch” approach to initial listing requirements. The New Board PREMIUM is for companies that meet the existing financial and track record requirements of the Main Board, but which are currently ineligible to list in Hong Kong because they have non-standard governance structures. New Board PREMIUM will be open to both professional and retail investors; therefore a more stringent regulatory approach has been proposed.

The GEM Paper proposed changes to both the GEM and Main Board Listing Rules to address recent concerns on the quality and performance of GEM applicants and Main Board issuers. Major proposals under the GEM paper include: (i) repositioning GEM from being a stepping stone to Main Board to become a “stand-alone” board such that GEM applicants, if they want to transfer to the Main Board, will need to appoint a sponsor and issue a “prospectus-standard” listing document; (ii) retaining the current practice of not requiring a GEM applicant that can meet the Main Board admission requirements to list on the Main Board instead of GEM; and (iii) increasing the minimum public float value of a GEM issuer’s securities from HK$30 million to HK$45 million, and from HK$50 million to HK$125 million for a Main Board issuer’s securities. Other amendments have also been proposed in the GEM Paper to reflect currently acceptable market standards.

With the assistance of the Company Committee, the Law Society has prepared submissions to respond to the two consultation papers. The Law Society expressed full support for steps that would be taken to improve the integrity and attractiveness of the GEM and Main Board as well as combating shell planting. However, the SEHK should keep an open mind on the removal of the transfer mechanism from GEM to Main Board. As to the introduction of New Board, the Law Society expressed reservation.

The Law Society’s submissions on the above can be found at the links below:

New Board Paper: http://www.hklawsoc.org.hk/pub_e/news/submissions/20170818a.pdf.

GEM Paper: http://www.hklawsoc.org.hk/pub_e/news/submissions/20170818.pdf.

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