As Hong Kong's stock market is likely to be stuck in the doldrums for some time, it's no surprise that the ever-enterprising chief of the local bourse, Charles Li Xiaojia,

is pushing for a third board to be set up - specifically for high-tech 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 backdoor-listing 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. Provided to China Daily

(HK Edition 02/29/2016 page9)

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