HKEX proposes way forward to expand Hong Kong's listing regime
Clear consensus on expanding listing regime to ensure Hong Kong remains competitive
Strong support for measures to help attract more listings by innovative companies
Exchange to consult market on rule changes to facilitate listings from three key groups
HKEX Chief Executive Charles Li blogs about the proposed changes to the listing regime, why they’re important, and how they will make Hong Kong more relevant and more competitive
HKEX and its subsidiary the Exchange today (Friday) announced the conclusions to the New Board Concept Paper (Concept Paper) published on 16 June 2017. Based on the feedback from market stakeholders, the Exchange has determined to proceed to expand Hong Kong’s listing regime to facilitate listings of companies from emerging and innovative sectors.
The Exchange also separately published today the consultation conclusions on the Consultation Paper on the Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (GEM Consultation Paper).
The Concept Paper was published pursuant to a holistic review by the Exchange, which identified certain gaps within Hong Kong’s listing regime affecting its overall competitiveness versus other major global listing venues, particularly in respect of attracting companies from emerging and innovative sectors. Its purpose was to solicit market feedback on whether or not it was necessary to broaden Hong Kong’s listing criteria to better accommodate the needs of innovative companies and, if so, the most appropriate way of doing so.
The Exchange received 360 responses to the Concept Paper from a broad range of respondents representing all relevant stakeholders.
A wide variety of constructive views were received, with a clear consensus that the Exchange must take measures to broaden capital markets access in Hong Kong and enhance its competitiveness as a global financial centre.
Key findings from the market consultation include:
91 per cent of respondents supported measures that would help diversify the Hong Kong market and, in particular, help attract more issuers from emerging and innovative sectors.
Market feedback on whether to permit pre-profit companies to list in Hong Kong was highly supportive, but proposals to accommodate such issuers by a “lighter touch” approach to initial listing requirements was not broadly supported.
A large majority of feedback saw WVR structures as a competitive issue and, on that basis, were supportive of permitting them in Hong Kong, so long as they are accompanied by certain safeguards that provide appropriate shareholder protection.
Feedback generally supported allowing waivers from strict compliance with Hong Kong “equivalent” shareholder protection standards for secondary listings in Hong Kong for innovative companies already listed on the New York Stock Exchange or Nasdaq with a good compliance track record, including those with a “centre of gravity” in Greater China and/or with WVR structures. A significant proportion of respondents considered that other jurisdictions in addition to the US should be considered for similar waivers.
A majority of respondents supported the introduction of a New Board as one means to widen Hong Kong’s access to listings, but many preferred a simpler structure that incorporated innovative companies directly on the Main Board.
Proposed Way Forward
Drawing on the feedback received in response to the Concept Paper and subsequent regulatory discussions with the Securities and Futures Commission (SFC), the Exchange has determined to proceed to expand the existing listing regime by introducing two new chapters to the Main Board Listing Rules to allow the listing of (i) Biotech issuers which are pre-profit / pre-revenue; and (ii) issuers from emerging and innovative sectors that have WVR structures, subject to additional disclosure and safeguards.
Companies with WVR structures would be required to have a minimum expected market capitalisation of $10 billion and, if below $40 billion of market capitalisation, would need to meet a higher revenue test of $1 billion in the full financial year before listing. Pre-revenue companies listing under the new Biotech chapter would be required to have a minimum expected market capitalisation of $1.5 billion.
The Biotech sector has been chosen as the initial focus in widening market access for early stage companies as the activities undertaken by Biotech companies tend to be strictly regulated under a regime that sets external milestones on development progress. This will provide investors with a frame of reference to judge the value of companies that do not have traditional indicators of performance (eg revenue and profit). Biotech companies also make up a majority of companies in the pre-revenue stage of development seeking a listing. Such issuers would also be subject to the same regulatory standards as other applicants to the Main Board, save for the financial track record requirements.
The Exchange also proposes to modify the existing Listing Rules in relation to overseas companies (and also make consequential changes to the 2013 Joint Policy Statement) to create a new concessionary secondary listing route to attract issuers from emerging and innovative sectors that are primary listed on the New York Stock Exchange, Nasdaq or the “premium listing” segment of the London Stock Exchange’s Main Market.
The Exchange is in the process of finalising the proposals and has commenced the drafting of the proposed amendments to the Listing Rules to put the proposals into effect. The Exchange intends to further refine the proposals through discussions with stakeholders, following which a formal consultation on the detailed proposals and proposed amendments to the Listing Rules will be conducted. The Exchange expects to begin the discussions shortly after the publication of these Consultation Conclusions with a view to proceeding with the formal consultation on the proposed Rule amendments in the first quarter of 2018.
HKEX Chief Executive Charles Li commented, “The market has made it clear they want the Exchange to take action to broaden Hong Kong’s capital markets access and enhance its competitiveness. We are very grateful for the feedback we received from a wide range of market participants which informed this clear new direction we have proposed for Hong Kong’s listing regime. We are encouraged by the momentum Hong Kong has built in establishing itself as the region’s hub for innovative companies. We look forward to market participants’ continued support in our second round consultation on rule amendment details. By the second half of next year, we hope that we will see a significant number of innovative companies beginning to choose Hong Kong, making the Hong Kong market a relevant and even more competitive place.”
Tab Read More for details.