Tightening listing rules - pundits on the same page
Updated: 2017-02-23 07:44
By Lin Wenjie in Hong Kong(HK Edition)
To boost Hong Kong's position as a global financial center, the SAR government plans to encourage regulators to impose more stringent company listing rules. Edmond Tang / China Daily
Financial market gurus have thrown their weight behind the government's plan to prod regulators into imposing more stringent company listing rules to back up Hong Kong's position as a global financial center.
They agreed that stiffer regulations would meet the market's needs and suggested that relevant measures should include stricter checks on the backgrounds and revenue sources of enterprises planning to float in Hong Kong.
The government is also mulling the feasibility of introducing a new board and extending profits tax exemption to onshore privately offered, open-ended fund companies to improve the development of the SAR's financial market.
"Hong Kong, as a global financial center, should meet the needs of the market, so regulators are bound to tighten the rules to avoid manipulation of share prices," said Ferris Kwok, chief research analyst at Success Finance Group.
Possible steps, he said, should include conducting stricter due diligence by a third party, and an investigation into the overall revenue of a company to be listed, as some enterprises are seeking listings merely to finance their speculative investments that are irrelevant to their operations. Such companies will dent investor confidence in the market.
The proposed regulations come on the heels of recent wild fluctuations in the prices of Growth Enterprise Market (GEM) stocks.
According to the Securities and Futures Commission (SFC), first-day GEM gains in the first half of last year averaged almost 500 percent, while the average first-day price for stocks on the main board were just 15 percent during the same period.
The problem is that almost all the initial public offerings (IPOs) on the GEM were conducted by way of placement. Many listed GEM stocks have highly concentrated shareholdings and a small shareholder base, which is easy to manipulate. On average, among the GEM IPOs listed in 2015 and the first half of last year, the top 25 placements took up 96 percent of the shares on offer and the average number of placements for the entire issue was 135.
The SFC and Hong Kong Exchanges and Clearing Ltd (HKEX) conducted joint consultations on proposed enhancement to the decision-making and governance structure for listing regulations last year. Both institutions are now considering and analyzing the views.
Although the specifics of the proposed listing rules have yet to be thrashed out, the government hopes HKEX will set up a new trading board to attract technology and new economy companies to float here.
A government source told China Daily the regulator is also concerned about the volatility on the new board as it may have different categories of companies and each segment should be open only to the appropriate type of investors.
For instance, startup enterprises should have a lower listing threshold and would only be open to professional investors as they pose high risks. But, US-listed multinational companies with weighted voting right structures, such as a dual-class share structure, should be open even to private investors.
"The new board would be volatile in the short term as investors would have to familiarize themselves with the market. However, in the long term, the new board would enhance Hong Kong's internationalization," Kwok said.
(HK Edition 02/23/2017 page3)