Transparency in safeguards, risks needed for proposed dual-class shares
HKEX’s proposal for two new boards geared toward tech companies is in line with the development of the city’s future competitiveness, but transparency of safeguards and downside risks are needed
Hong Kong is garnering support towards creating a third board to attract technology start-ups and new economy firms. But safeguards on corporate governance, investor education and transparency in the downside risks are needed to ensure the success of the market.
Hong Kong Exchanges and Clearing (HKEX) has just completed a consultation over the proposed third board, but a second round of consultation on the detailed rules is still needed.
The new third board will offer two markets, one for listing big companies that have the dual-share structure favoured by many technology firms, which would open to all investors. The second board is for start-ups which would be accessible only to professional investors.
Hong Kong’s main and GEM boards have adopted the one-share one-vote principle in the belief that a dual-class share structure can lead to potential abuse by corporate insiders. Venture capitalists and fund managers also tend to oppose to weighted voting rights as they reduce the price at which they can sell their shares relative to international peers.
But attitudes of Hong Kong regulators and some market participants are starting to shift, with focus turning to the development of the city’s future competitiveness and the appropriate measures to safeguard investors’ interests and mitigate governance risk.