Hong Kong Exchanges and Clearing has backed down on a requirement that existing Growth Enterprise Market companies comply with a more stringent public float rule. The move is expected to ease selling pressure on Hong Kong's second board. 'In light of the current market conditions, the transitional arrangement . . . for GEM-listed issuers to comply with the requirement is no longer appropriate,' HKEx said. The new public float requirement is among a package of rules to be introduced on October 1. It originally meant all companies with a market capitalisation of less than HK$4 billion had to have at least 25 per cent of their shares in public hands. The existing requirement is 20 per cent. The concession to existing companies means only firms listing after October 1 need comply. HKEx originally gave existing GEM companies that failed to comply a two-year grace period. Given the GEM's persistently sluggish performance, the requirement faced strong opposition from the financial sector. Opponents included Sheridan Yen, managing director of Sunevision Holdings, the technology arm of Sun Hung Kai Properties. Mr Yen said last week the requirement was not fair to companies already listed. Sunevision spent HK$31 million to repurchase 16.6 million shares in the year to June 30, which effectively boosted Sun Hung Kai's holding to more than 84 per cent. With the poor market sentiment, one investment banker said even if major shareholders agreed to place out part of their shares to comply with the rule there would probably be no buyer willing to take up such a large amount. The GEM index has lost more than 80 per cent from its high of 1,021 points in March last year. It edged up 0.12 points yesterday to close at 164.91 points. The market's turnover has also shrunk substantially since the bursting of the technology bubble. In August, average daily turnover by volume was 76 million shares, down 48 per cent from the previous month, and 62 per cent from August last year. However, some analysts are concerned that HKEx's decision will lead to confusion, with two types of companies - one with a public float of 25 per cent and another with only 20 per cent - in the same market at the same time. Apart from waiving the tougher public float rule, HKEx reminded existing GEM firms they also enjoyed looser regulation in respect of the share lock-up period for initial management shareholders and share options schemes. For example, initial management shareholders of companies listing after October 1 cannot dispose of shares within 12 months. However, their counterparts in existing companies can sell shares after six months as long as they publish an immediate announcement. Also, a company can continue to grant options under the existing terms, rather than under the new rules, if it has entered into a contractual commitment before July. Under the new rules, companies can grant only up to 1 per cent of the company's securities to an individual, unless approved by shareholders.