SFC and HKEX urge GEM market sponsors to ensure ‘fair and orderly manner’ of IPO listings

PUBLISHED : Friday, 20 January, 2017, 11:06pm
UPDATED : Friday, 20 January, 2017, 11:13pm

Securities regulators in Hong Kong issued a strongly worded statement on Friday slamming the investment banks acting as sponsors and related parties in the Growth Enterprises Market following trading debuts that saw price swings of more than 10 times the IPO offer price.

“The SFC and the exchange consider that some market practices may not enable an orderly, informed and efficient market for such securities to develop,” according to a joint statement issued by the Securities and Futures Commission and the Hong Kong Exchanges and Clearing on Friday evening.

The SFC also issued a guideline to provide guidance to sponsors, underwriters and placing agents on the standards of conduct that is expected of them in the listing and placing of GEM listings.

The two regulators said new GEM listing applicants need to comply with all relevant GEM listing rules including ensuring their offerings are “for an open market as well as orderly, informed and fair trading to develop at the time of listing,” the statement said.

“The SFC or the exchange will, where appropriate, take action against applicants, sponsors, underwriters or placing agents who fail to have appropriate policies and procedures in place to ensure the placing is conducted in a fair and orderly manner,” it added.

“This joint statement is an initial step to address some of the current concerns with GEM IPO placings while we continue to work on a broader GEM reform,” said David Graham, chief regulatory officer and head of listing at HKEX.

“Meanwhile, the SFC or the Exchange will make enquiries if there are concerns that the holdings of the placing securities are overly concentrated,” Graham said.

“The GEM Listing Rules and the SFC’s Code of Conduct contain requirements designed to ensure the integrity, quality, transparency and fairness of our markets,” said Brian Ho, the SFC’s executive director of Corporate Finance. “The joint statement and the guideline are directed at applicants, sponsors, underwriters and placing agents, all of whom have vital roles to play in upholding the quality of our listing market.”

“Sponsors, underwriters and placing agents all play an important role in the listing and placing of GEM IPO stocks. Sponsors should advise the new applicant on the overall strategy and allocation basis to achieve an open market and an adequate spread of shareholders, and placing agents should put in place appropriate policies and procedures to avoid any undue concentration of shareholding,” said Julia Leung, the SFC’s executive director of intermediaries division.

The two regulators urged investors to be aware that the GEM is designed to accommodate companies that involve a higher investment risk than other companies listed on the main exchange.

“They should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration,” the statement said.