It might have seemed inevitable that the recent frenzy of flotations would bring with it demand for a relaxation of listing hurdles. The fickleness of the stock market means this window of opportunity might close as quickly as it opened. The Securities and Futures Commission (SFC) has now agreed in principle to proposals to exempt some larger companies from the three-year track record of profits needed to list on the main board. Instead, some measure of assets and income will be used if companies amass a market capitalisation of at least $2 billion after first-time share issues. This concession is designed to allow Hong Kong's stock market to attract more and bigger companies. But is this apparent pragmatism only destined to lead to even bigger market busts down the track? Inevitable parallels will be drawn with the launch of Hong Kong's technology-focused GEM market in 2000, which also pooh-poohed profitability. Then, too, the market was booming and profits seemed old fashioned in the new age of the internet. To compensate for the omission of a profit forecast in the prospectuses, GEM stocks had to commit to quarterly reporting. But this enforced discipline did not translate into profits. Last year, 50 per cent of all GEM firms were still unprofitable. Their share price performance was even more disappointing, and investors and prospective new issues now recognise that the GEM market is a place where few fortunes will be made. The SFC and Hong Kong Exchanges and Clearing (HKEx) will want to be sure that transferring these listing concessions to the main board will not also result in a similarly negative experience for investors. The exemption decision might have seemed less surprising if a government-sponsored review of the GEM experiment had been a little less damning, contributing to a seemingly endless debate on how to strengthen listing standards and corporate disclosure. Moreover, the partial removal of profit requirements for listed companies is surely the type of decision that underlines the conflict of interest in HKEx's status as both new-issue gatekeeper and profit-maximising listed company. Nor is it just HKEx that stands to benefit from the rule changes. The Hong Kong government may now get to list some of its prime - but less profitable - assets. The Airport Authority, for instance, probably had a hole blown in its profit record by last year's Sars outbreak. But perhaps more important is the move by the China Securities Regulatory Commission to relax rules on mainland companies seeking overseas listings. Until recently, the CSRC's profitability hurdles were even more stringent than Hong Kong's. With these floodgates open, potentially hundreds of mainland companies will be allowed to list overseas this year. Here the lack of profits might be more worrying. In the past, investment banks needed to prune off the bad bits of the state-owned enterprises they were taking to market so as to create a suitably attractive listing vehicle. Could this be one reason for the renewed focus on investment banks' liability? The SFC cannot weigh these issues in isolation. If Hong Kong does not welcome these companies, in the current market one of our neighbours probably will. But allowing issuers to arbitrage loosely regulated markets has its own risks. Of course, profit may give a one-dimensional picture of a company when turnover, branding and research and development can also be considered. But in the absence of a better measure, it still offers the most dependable guide to investors in any market. And if investors also want dividends, profits matter rather more than the size of the company.