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Enoch Yiu

Fears emerge second board not yet ready for sponsor vetting

A proposal to transform the lacklustre Growth Enterprise Market  into a new bourse similar to London's Alternative Investment Market  has emerged as the most popular option on the Hong Kong stock exchange following a five-month-long consultation.

But fears have surfaced that the scandal-racked GEM  is not yet ready for an AIM regime, where vetting is left up to the sponsors.

The stock exchange yesterday posted the 16 submissions  from its consultation on revamping the GEM, which showed the AIM  model - in which retail investors would be banned from trading and listed companies  prohibited from migrating to the main board - was the most popular option.

The submissions canvassed three other options, which did not receive as much support.

These included combining the GEM with the main board to create a single market; making the second board a stepping stone to a listing on the main board; or to simply maintain the GEM's status  as a second board.

The submission from the Chamber of Hong Kong Listed Companies said the revamped GEM  should 'be regulated lightly and flexibly while maintaining the disclosure-based regime and the philosophy of 'buyers beware' and 'the market decides', serving to reduce the initial listing and subsequent compliance costs'.

The chamber said the current sponsor regime had to be revamped and strengthened to bring it into line with the AIM, the most popular second board in the world. A submission from the Hong Kong Institute of Directors said the AIM  had  attracted mainland listings.

It said the GEM should   follow the AIM, 'which is lightly regulated and places greater reliance on nominated advisers rather than on the compliance of issuers'.

The AIM also allowed  market makers to ensure liquidity, a feature which the institute  said Hong Kong should  have.

The Law Society of Hong Kong  said the AIM  posed a threat to Hong Kong as a major listing centre for  Chinese enterprises  as it had listed 247  foreign firms and had  attracted mainland firms.

Charltons Solicitors & Notaries, which represents six investment banks, backed the AIM option but said a new market  should be run separately from the main board and  be 'a lightly regulated, caveat emptor, disclosure-based market'.

The Chinese General Chamber of Commerce  urged a better quality of GEM company sponsors.

Nevertheless, not all peak bodies agreed the AIM option was the best move for the GEM.

The Hong Kong Stockbrokers Association submission said:  'In view of the past scandals on both the main board and the GEM,  where the sponsors were alleged to have been less than diligent, Hong Kong is not yet ready for an AIM-type regime where the vetting and regulation of compliance is delegated to the sponsors.''

Established in November 1999 to allow start-ups to raise funds more easily, the GEM has lower entry requirements than the main board but stricter disclosure rules.

The AIM was launched amid the technology boom in 2000 and  allows companies to list quickly to capture the best market timing.



UK model favoured option for GEM