Hong Kong’s small brokers push for new rules to revive IPOs
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Following a broad crackdown, Hong Kong’s small-cap exchange GEM has stagnated without a listing since 2021.
PHOTO: REUTERS
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HONG KONG – Hong Kong’s struggling smaller brokers and advisers have formed a union-like association to prod the government for more support as the city suffers through a drought of initial public offerings (IPOs) and sagging trading.
Officially kicking off on Dec 12, the Association of Hong Kong Capital Market Practitioners (HKCMP) is organised by 29 smaller brokers and advisers to nudge regulators to loosen their tight grip on the city’s small-cap market.
The group has backing from some of the financial hub’s key politicians, including Executive Council convener Regina Ip.
Following a broad crackdown against the murkier side of the city’s markets, Hong Kong’s small-cap exchange GEM has stagnated without a listing since 2021.
The city recently offered reforms for the market, including allowing a more streamlined path to the big board, but smaller brokers say that is not enough.
Regulators are too focused on the needs of big business, according to Mr Arnold Ip, the group’s chairman who runs the listed parent of corporate adviser Altus Capital.
The authorities need to focus on GEM on its own merits and offer ways to boost liquidity, according to Mr Ip, the nephew of Ms Regina Ip.
“We hope to revive Hong Kong as a more inclusive market for companies big and small as long as they call it home, regardless of where they are from,” Mr Ip said in an interview. “Once issuers and talent leave the market, it will take forever to rebuild the traction as an international financial centre.”
A spokesperson for Hong Kong Exchanges and Clearing said the bourse is committed to a listing framework for “quality” small and medium-sized enterprises (SMEs) while ensuring robust standards to protect investors.
The city’s market regulator, the Securities and Futures Commission, said GEM reforms will be “appropriate and suitable for Hong Kong”.
The GEM market was plagued by scandal, including insider dealing, market manipulation and wild swings in share prices.
Now the city has exported some of those same issues as many smaller firms have chosen to list on the Nasdaq, raising concerns among United States regulators.
The wild trading of the past is a consequence of the low liquidity of the GEM platform, Mr Ip said, adding that the association supports the development of a market-making mechanism for the board and strong enforcement against market manipulation.
Besides Ms Ip, the association is backed by local lawmakers in the financial services, banking and legal sectors, according to her nephew.
HKCMP has “strong views and sensible suggestions”, Ms Ip said in a text message, adding that she has endorsed the group in a personal capacity.
At least 19 Hong Kong-based firms have listed on Nasdaq since 2021, including brokerages AMTD Digital and Magic Empire Global, and a lesser-known locksmith and an air-conditioning installer.
AMTD, for example, has seen wild price swings and at one time was valued more than even Goldman Sachs Group, before plunging again.
There are “extreme difficulties” in getting GEM IPO applications through because the performance targets set by the exchange are not tailored for smaller listings, according to Ms Julia Charlton, the group’s vice-chairman.
“In other markets, smaller deals tend to have policy support,” she said.
“But in Hong Kong, bigger issuers tend to be faster to list. The fact that Hong Kong is difficult to list makes listing status a premium, leading to shell activities.”
The situation has long been dire for local brokers, with more than 96 local brokers ceasing trading since 2021.
“More and more companies are actively thinking of alternatives to a Hong Kong listing, which should be their natural home base,” said Mr Ip. “This is a crisis for us all.”
Mr Gordon Tsang, a partner at law firm Stevenson, Wong & Co, has advised nine Hong Kong and China-based companies to list on Nasdaq in the past three years and has more than a dozen clients preparing paperwork.
“There are more practical concerns and higher financial threshold to list in Hong Kong, whereas the US is more market-driven and accessible,” said Mr Tsang, who is not a member of the new coalition.
“Local SMEs with funding needs have almost no choice but to head for the US.” BLOOMBERG
