Get GEM house in or­der first

China Daily (Canada) - - HONG KONG -

As Hong Kong’s stock mar­ket is likely to be stuck in the dol­drums for some time, it’s no sur­prise that the ev­er­enter­pris­ing chief of the lo­cal bourse, Charles Li Xiao­jia, is push­ing for a third board to be set up — specif­i­cally for high­tech list­ings to re­vive in­vestors’ sag­ging in­ter­est in eq­ui­ties and boost the in­come of stock ex­change mem­bers.

The pro­posal seems to make per­fect sense at a time when the govern­ment is pulling out all stops to pro­mote in­no­va­tion and tech­nol­ogy, and en­hance the city’s sta­tus as one of the world’s high-tech startup hubs. In his lat­est Bud­get speech, Fi­nan­cial Sec­re­tary John Tsang Chun-wah came up with a slew of fi­nan­cial and ad­min­is­tra­tive mea­sures to nur­ture the growth and de­vel­op­ment of the high-tech in­dus­try.

But a mar­ket for that pur­pose has al­ready been op­er­at­ing for years. The Growth En­ter­prise Mar­ket (GEM) was cre­ated in 1999 to al­low promis­ing en­ter­prises that fail to meet the main board’s list­ing re­quire­ments to raise de­vel­op­ment cap­i­tal di­rectly from in­vestors.

Most of the en­ter­prises seek­ing to raise cap­i­tal in the GEM were orig­i­nally ex­pected to come from the tech­nol­ogy sec­tor.

But much to the cha­grin of its founders and reg­u­la­tors, the GEM has evolved into an es­tab­lish­ment that’s more akin to a small town gam­ing joint than Big Ap­ple’s Nas­daq on which it is fash­ioned.

In­stead of ad­her­ing to its mis­sion to be the step­ping stone for smaller en­ter­prises to grow and even­tu­ally move onto the big board, the GEM has be­come a chan­nel for back­door list­ings, al­low­ing com­pa­nies to cir­cum­vent list­ing rules and reg­u­la­tory scru­tiny.

Back­door list­ing is

not against the law. But, as Se­cu­ri­ties and Fu­tures Com­mis­sion (SFC) Chair­man Carl­son Tong Ka-shing said re­cently, the watch­dog agency sees the need “to tighten reg­u­la­tions to make sure that all trans­ac­tions through the back­doorlist­ing process do not have mal­prac­tices”.

In­vest­ment an­a­lysts have said that trans­ac­tions in­volv­ing back­door list­ings have con­trib­uted to the fre­quent and wild price swings in the GEM mar­ket.

A lo­cal me­dia re­port noted re­cently that only 18 per­cent of GEM-listed firms are from the in­for­ma­tion-tech­nol­ogy sec­tor, while the rest are a mix of com­pa­nies in the con­sumer, ser­vices and con­struc­tion sec­tors.

The SFC be­gan a re­view of the GEM late last year. “We should first re­view and con­firm the role of the GEM be­fore we con­sider if we need to launch a new third board,” Tong said.

Mem­bers and share­hold­ers of the stock ex­change are un­der­stand­ably con­cerned about the dwin­dling turnover and fall­ing share prices. But they must try to work with the SFC to get the GEM house in or­der first be­fore open­ing up a new front.


In­vest­ment an­a­lysts say that trans­ac­tions in­volv­ing back­door list­ings have con­trib­uted to the fre­quent and wild price swings in the Growth En­ter­prise Mar­ket mar­ket.

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