The stock exchange will next week kick-start the consultation process for its much-hyped new Third Board, which is being created with the principal aim of attracting more technology and start-up firms to list in Hong Kong. This would seem to be the perfect time, therefore, to look closely at what’s next for the Growth Enterprise Market (GEM), and what role that should play in what now becomes a multiple-market trading structure in Hong Kong. Let’s not forget, that the proposed Third Board is being created for essentially the same reason the GEM was, way back in 1999: of attracting more technology firms to list in the city. So we can safely conclude, that if the GEM had been a success, we simply wouldn’t need this new market at all. When the stock exchange launched the GEM as its second board, the major difference with the main board was companies were not required to be profitable, while main board listing candidates needed to have a combined profit of HK$50 million (US$6.42 million) in the three years before listing and one of at least HK$20 million in the year before the IPO. The GEM still requires listing candidates to have annual HK$20 million income, which is generally considered too high for many start-ups, with the more profitable ones now just preferring to list on the main board. The GEM also demands quarterly reporting, which is more restrictive than the main board’s six-monthly reporting. Both the GEM and the main board do not allow dual-class share structures favoured by many technology firm founders, who might hold only minority stakes but still want to keep control. The result is, that the main board is packed with some big names, while the GEM has only been able to attract some relative minnows. Eighteen years on from its creation, the figures show what a disappointment it has been. Just 288 companies list on the GEM, compared with 1,739 on the main board. Its market cap is HK$314 billion, or 1.1 per cent of the main board’s, which is worth some HK$28.425 trillion. And its turnover is also just 1 per cent of its bigger brother, according to data from the Securities and Futures Commission. Broken down by sector, only 18 per cent of GEM-listed firms are actually related to information technology, 29 per cent fall under consumer and services, and 26 per cent are construction firms. For the Third Board to succeed where the GEM has failed – successfully attracting tech and other start-ups in greater numbers – it has to relax its entry requirements, and its shareholder structures. But more than anything, there has to be a very clear and obvious division between the three boards’ ambitions and their target constituents. For the GEM, that could mean tightening its requirements to tailor itself more towards small- and medium-sized companies, which are looking to raise funds, to then grow their scale towards possible future listing on the main board. Hong Kong Exchange and Clearing, run by chief executive Charles Li Xiaojia, which will oversee the running of all three boards, should also consider upping the main board’s minimum HK$50 million profit requirement, which has remained unchanged in almost 30 years. Such a higher entry threshold for the main board, would help upgrade its focus on attracting mega companies to list, leaving the GEM to focus on SMEs, and the Third Board on start-ups and companies looking for special shareholding structures.