New | After more than a decade, it’s time to admit that GEM hasn’t worked and here’s what we need to reboot its appeal among smaller companies

It might sound counter intuitive, but the best way to fix the Growth Enterprise Market might be from a dumbing down of the requirements for companies to gain entry to the second board.

It may in fact be the only way to attract innovative companies to list in Hong Kong instead of heading across the border to list on Beijing’s “third board” – the Chinese National Equities Exchange and Quotations (NEEQ) – or Shenzhen’s ChiNext.

There’s no doubt the Securities and Futures Commission will have its hands full during a planned review to tackle difficult issues such as share-price ramping or “shell farmers”, the practise whereby some GEM listings are cultivated by professional creators who sell them on as an easier pathway to a main board listing.

Hong Kong has been a key listing hub for many mainland enterprises. But the city is losing out to the United States when it comes to mainland technology companies, who prefer a New York listing.

One reason is that we have set the bar too high for smaller companies. When laying out rules for the GEM board before its launch in 1999, regulators eliminated any profit requirement knowing that start-ups typically lose money in the early stages.

Regulators, however, still kept fairly rigid requirements when it came to scale and activity, requiring that companies needed to be in business for two years and have a cash flow of HK$20 million and a minimum market cap of HK$100 million. In practice, this has turned out to be too ambitious, with many new companies saying the numbers were too high.