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Reform planned for HK's GEM

By Zhang Jin (China Daily)
Updated: 2006-07-07 08:24

Ask a mainland IT company where it would float its shares if choices were open, and the answer would most likely be the NASDAQ.

Why not Hong Kong, some would question, citing the fact it has passed the test of time and has become the first-choice destination for mainland listings.

In response, many would say the city does not have a board like the NASDAQ.

Fortunately, that problem might eventually be solved, as Hong Kong regulators are exerting efforts to reform its ailing secondary board, the Growth Enterprise Market (GEM), into a viable alternative to the NASDAQ.

Hong Kong Exchanges and Clearing (HKEx), operator of the city's stock bourse, is soliciting market views to rejuvenate the 9-year-old board, which has long been troubled by lukewarm transactions and loss of high-quality firms.

HKEx would either incorporate the GEM into the main board or reform it into a secondary board for small and medium-sized enterprises (SMEs), it has proposed in a discussion paper.

"I think HKEx wants to make it Asia's NASDAQ, instead of a simple merger," said Andes Cheng, associate director at South China Research Ltd. "That's also the voice from the market."

To achieve that goal, new policies in favour of smaller companies  mainland firms in particular  are expected to be introduced.

"There could be incentives to refresh the board ... although the current threshold to list on the GEM is low enough already," Stephen Hui, a member of HKEx's listing committee, told China Daily.

For example, he suggested the board introduce an upgrade-downgrade system, which would allow qualified GEM firms to automatically be upgraded to the main board without any charges.