Hong Kong’s financial development council dismisses concerns over third board
The government-appointed Financial Services Development Council (FSDC) supports the local stock exchange’s proposal to launch a third board for start-ups although some market players are worried about related investor protection issues.
FSDC chairwoman Laura Cha Shih May-lung said the council would support the Hong Kong Exchanges and Clearing (HKEx) proposal to launch a third board to help new companies raise funds.
HKEx chief executive Charles Li Xiaojia last week said the city’s stock exchange operator is weighing launching a third board – adding to the existing main board and the Growth Enterprise Market (GEM) – tailor-made for companies that do not have the requisite profit or operational requirements to qualify for GEM.
“The FSDC last year issued a paper on the listing regime in Hong Kong that suggested Hong Kong could consider following overseas markets and create multiple markets with different requirements tailor-made for the different needs of investors and listed companies,” Cha said.
But Louis Tse Ming-kwong, director of VC Brokerage, worries the third board could have too low an entry threshold, drawing poorly performing companies.
“It is important for Hong Kong to uphold investor protection and corporate governance standards. If we introduce a third board that has an entry level that is too low, it may prompt subpar companies to list in Hong Kong, which may undermine the quality of the Hong Kong market,” Tse said.
Cha, however, said a low entry level would not mean abandoning investor protection.
“Many problems of listed companies are related to fraud, which can’t be prevented even by listing rules,” Cha said. “There are some start-ups that need to raise funds while some investors like to invest in high-risk-high-return products. We need to consider their demands too,” she said.
Brett McGonegal, co-chief executive of Reorient Group, said the third board proposal “makes perfect sense and is a step towards making Hong Kong a destination for corporates of all sizes and, most importantly, all stages of growth”.
“The third board will address the high hurdle rate for listing that has pushed many successful companies to look away from Hong Kong and list elsewhere in the past,” McGonegal said.
Cha said the council would also study other financial aspects such as crowd-funding, or the use of internet or social media network to raise funds for some projects.
“Crowd-funding has become a new international trend. Young people and small enterprises would like to use this new method to raise funds, and the local market should have more debate on how to develop crowd-funding in Hong Kong,” she said.
Chief Executive Leung Chun-ying in his recent policy address said HK$100 million would be allotted for the council to study how to train financial talent in the city. Cha said it would be up to the Financial Services and the Treasury Bureau to decide how to spend the grant to help train people for insurance, bank and compliance sectors.
Other major projects for the council include studying how to promote green financing and helping Hong Kong capture the fund-raising opportunities as a result of China’s One Belt, One Road project of regional integration.
“One Belt, One Road will have a lot of infrastructure projects that would need to raise funds. As an international financial centre, Hong Kong can play a role in it,” she said.