The Securities and Futures Commission has dealt the stock exchange a setback for its Growth Enterprise Market (GEM) in the run-up to its first listing, according to exchange sources. The commission has rejected the exchange's plan to ease a rule on share lock-ups to six months from two years for key shareholders of GEM companies, the sources said. They said the commission was concerned about higher risks to small investors. The commission based its decision on the view that GEM companies were likely to be high-technology start-ups closely linked to management shareholders, the sources said. However, the commission did approve an exchange proposal to cut the minimum public float requirement to 15 per cent for GEM companies with a market capitalisation of more than $2 billion, the sources said. Under GEM-listing rules, the minimum requirement for all companies is 20 per cent to 25 per cent. The stock exchange was informed of the commission's decisions on Monday, the sources said. The GEM officially opened on Monday, but the first listing on the new board will not take place until November 25, when biochemical company China Agrotech Holdings begins trading. According to a stock exchange source, approval had been expected for both proposals. He said the commission had given its tacit approval for the amendments after the exchange had informed it the moves were needed to help the GEM better compete against the Nasdaq market in the United States. GEM listing committee chairman Lo Ka-shui has said efforts to ease the rule were an answer to strong opposition from companies interested in listing on the new board. Mr Lo said a large number of companies had threatened to bypass the GEM and list on Nasdaq if the rule were not changed. If the lock-up rule is left unchanged, the stock exchange would use its discretionary power to allow key GEM shareholders to dispose of shares before two years, the exchange sources said. Mr Lo declined to comment on the rejection. An exchange spokesman also refused to comment, except to say it would continue to discuss the proposal with the commission. The exchange dropped plans to announce the commission's decisions, pending more talks, the exchange sources said. The ruling was criticised by brokers and investment bankers. Gilbert Chu Kwok-tsu, research chief at Sun Hung Kai Securities, said the shorter time frame should have been approved as the GEM was being promoted as a disclosure-based market. 'I don't think the regulators should impose such strict measures on the new market,' Mr Chu said. 'Instead, they should improve the quality of disclosure, thus allowing investors to get needed information at the appropriate time.' Meocre Li Kwok-wing, chief executive of ICEA Finance Holdings, said a cut would allow large investors of technology firms more room with their investments in a sector that involved many mergers and acquisitions.