Consultation on Hong Kong’s GEM Listing Reform

The Hong Kong Stock Exchange (HKEX) has published a consultation paper seeking market feedback on proposed listing reforms to the GEM.

It is the third proposed reform to the GEM since it was launched in November 1999ⁱ.

In this latest consultation paper released on 26 September 2023, HKEX chose not to embark on a holistic review considering the GEM’s positioning, market perception and viability as an alternative market to the Main Board, as HKEX stated it would in May 2021ⁱⁱ.

Instead, HKEX merely reiterated its commitment to small and/or medium -sized enterprises (SMEs). Encouraging and facilitating their listing will continue to be its priority.

Three key proposals are made:

A new alternative eligibility test targeting high growth enterprises that are heavily engaged in research and development (R&D) activities.
A new streamlined transfer mechanism to enable qualified GEM issuers to transfer to the Main Board without needing to appoint a sponsor to carry out due diligence, nor produce a “prospectus-standard” listing document.
The removal of mandatory quarterly reporting requirements and alignment of other ongoing obligations with those of the Main Board.

Details of the key proposals (highlighted) are set out below in tabular form, in comparison to GEM’s existing requirements and those of Beijing Stock Exchange (BSE) and Catalist of Singapore Stock Exchange (SGX).

Note that BSE was launched in November 2021 as a fundraising platform serving innovative Mainland SMEs; and Catalist was launched in November 2007 to cater for the fundraising needs of fast growing companies.

Financial Eligibility Requirements

Market	HKEX - GEM		BSE^{note 1}		SGX
Market	Existing Requirement	New Alternative Eligibility Test	Standard I	Standard III	Catalist
Market Capitalisation	≥HK$150M	≥HK$250M	≥RMB200M	≥RMB800M	Nil
Cash Flow	≥HK$30M (in aggregate for last two financial years)	Nil	Nil	Nil	Nil
Revenue	Nil	≥HK$100M (in aggregate for last two financial years)	Nil	≥RMB200M (for the last financial year)	Nil
R&D Expenditure	Nil	≥HK$30M (in aggregate for last two financial years) + 15% total operating cost (for each of the two years)	Nil	≥8% of total revenue (for last two financial years)	Nil
Net Profit	Nil	Nil	≥RMB15M and return on equity ≥8% (both for last two financial years)	Nil	Nil
Net Assets	Nil	Nil	≥RMB50M	≥RMB50M	Nil
Working Capital Sufficiency	12 months from date of listing document		Nil		12 months after listing
Trading Record	2 years		12 months		Nil
Ownership Continuity	Throughout latest full financial year up to listing		Nil		Nil
Management Continuity	Throughout latest 2 full financial years up to listing		Nil		Nil
Public Float	≥25% or ≥15% (if market cap > HK$10 billion)		≥25% or ≥10% (if capital stock > RMB400M)		≥15%

note 1: The BSE offers a choice of 4 initial listing standards with different minimum market cap requirement: I - RMB200M, II - RMB400M, III - RMB800M; and IV - RMB1.5 billion. Instead of setting out all 4 standards, only standard I and III are used for comparison purpose.

Mechanism for Transfer to Mainboard

GEM – Existing Requirements

GEM - New Streamlined Transfer Mechanism

BSE

SGX Catalist

Eligibility Requirements

Must meet all qualifications for listing on the Main Board, plus

appointment of sponsor
publication of a “prospectus – standard” listing document

Must meet all qualifications for listing on the Main Board, plus

minimum daily turnover threshold of HK$50,000 (or HK$100,000 ^{note 2}) on at least 50% of the trading days over the Reference Period ^{note 3}
a volume weighted average market capitalisation over the Reference Period that meets the minimum market capitalisation requirement for listing on the Main Board
publication of transfer announcement (with draft for HKEX pre-vetting)

NO need to appoint sponsor nor issue a “prospectus – standard” listing document

Must meet relevant financial eligibility requirements of Shenzhen ChiNext or Shanghai STAR Board

Must meet main board financial eligibility requirements

Track Record of Listing

One full financial year after GEM listing

Three full financial years as a GEM issuer prior to transfer

One year

Two years

note 2: HKEX is seeking views on which amount (HK$50,000 or HK$100,000*) is preferred.

note 3: ‘Reference Period’ means the 250 trading days immediately preceding the transfer application and until the commencement of dealings on the Main Board.

Other Proposed Reforms

	GEM – Existing Requirements	GEM -Proposed Reforms	BSE	SGX Catalist
Post-IPO Lock Up for Controlling Shareholders	24 months	12 months	12 months (two full years for pre-profit issuer)	12 months
Periodic Reporting	Quarterly, interim and annual reporting	Interim and annual reporting only	Quarterly, interim and annual reporting	Interim and annual reporting
One Executive Director to Act as Compliance Officer	At all times	No longer required	Nil	Nil
Appointment of Compliance Adviser (CA)/Sponsor	Must retain CA until publication of its results for the second full financial year after listing	Must retain CA until publication of annual report for first full financial year	Must retain sponsor until end of third full year	Must retain sponsor at all times

ⁱ The proposals set out in the Consultation Paper represent the third major reform to GEM since it was launched in November 1999:

It first operated as an alternative market to the Main Board on an “enhanced disclosure – buyer beware” regime. Then came the bursting of the “dot.com” bubble.
In July 2008, GEM was re-positioned as a “stepping stone” to the Main Board with rules amended to align with those of the Main Board. A streamlined transfer mechanism was set up, which was yet found to have been heavily exploited by lower quality companies to gain easier access to the Main Board via GEM.
In February 2018, GEM was re-positioned as a “stand-alone board” for SMEs with its name “Growth Enterprise Market” changed to "GEM". The 2008 streamlined transfer mechanism was abolished.
Since 2019, the number of new listings and funds raised on GEM have significantly declined. In 2022 no new issuers listed on GEM and existing listed issuers raised only HK$2.7 billion in funds.

ⁱⁱ In May 2021, there were market comments that GEM was no longer a viable listing platform for SMEs and traditional companies and HKEX stated that it would launch a review of GEM to consider, amongst other things, comments received regarding GEM’s positioning, market perception, and viability as an alternative to the Main Board.