Following is a question by the Hon Robert Lee and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (April 30):
 
Question:
 
     In 2023, the Hong Kong Exchanges and Clearing Limited (HKEX) conducted a consultation on the GEM (formerly known as "Growth Enterprise Market") Listing Reforms and completed the amendment to the GEM Listing Rules. However, it has been reported that upon the introduction of a series of enhancement measures, only three enterprises were listed on GEM last year. Some members of the sector are of the view that GEM has still failed to perform its functions properly. In this connection, will the Government inform this Council:
 
(1) whether it knows if the HKEX has assessed the effectiveness of the GEM reform, including whether the expected targets (not limited to the number of new listings and the amount of funds raised) have been achieved, and of the specific data or indicators showing that the attractiveness of GEM to issuers has been enhanced after the reform; if an assessment has been conducted, of the details; if not, the reasons for that;
 
(2) as there are views pointing out that insufficient market liquidity and relatively low investor participation are the core problems of GEM, of the concrete measures put in place by the Government to enhance the market liquidity of GEM, so as to attract the participation of more overseas and local investors, thereby strengthening the vitality and resilience of the market;
 
(3) whether the Government will join hands with the HKEX to review afresh the positioning of GEM and formulate strategies for its long-term development, as well as to work for co-ordination with other financial policies to ensure competitiveness and sustainable development of Hong Kong's investment and capital raising markets;
 
(4) as many small and medium enterprises (SMEs) have relayed that their desire to go listing on GEM has been dampened by the costs of listing which are on the high side, whether the Government will encourage the regulatory bodies to carry out reforms or relax the relevant listing requirements, so as to alleviate the financing costs of SMEs when going listing on GEM; if so, of the details; if not, the reasons for that; and
 
(5) how the Government will provide a suitable financing platform to enable SMEs which are unable to meet the listing requirements of the Main Board to go listing in Hong Kong (irrespective of whether they are listed on the GEM or other new boards)?
 
Reply:
 
President,
 
     In consultation with the Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing Limited (HKEX), the reply to the five parts of the question is as follows:
 
     GEM is positioned to provide a fundraising platform for small and medium enterprises to support their innovation and development, value creation and business growth. To enhance the attractiveness of GEM to issuers and investors, the HKEX implemented a series of GEM reform measures in January 2024. These include introducing a new financial eligibility test for high growth enterprises that are heavily engaged in research and development activities; introducing a new "streamlined transfer mechanism"; aligning the continuing obligations of GEM issuers with those of the Main Board, etc.
 
     The Government, regulators and the HKEX have been closely monitoring the development of stock markets in different places and the effectiveness of relevant measures, as well as continuously reviewing the implementation experience and market conditions. Overall speaking, the initial public offering (IPO) market had gradually become more vibrant in 2024, and enterprises have been increasingly confident about Hong Kong's financing prospects. In 2024, the amount of total IPO funds raised in Hong Kong exceeded $87 billion, an increase of close to 90 per cent year-on-year and ranking fourth globally. Since the GEM reform, three companies were listed on GEM in 2024. As of the end of March this year, the HKEX was processing over 100 listing applications including that for listing on GEM. As regards liquidity, trading volume in the securities market hit new highs, with the overall average daily turnover of the Main Board and GEM increasing by 26 per cent year-on-year. The overall average daily turnover for the first three months of this year increased by 144 per cent year-on-year. The average daily turnover of GEM in March this year was about $78 million, up 77 per cent year-on-year. Under the newly implemented "streamlined transfer mechanism", one company was successfully transferred to the Main Board for listing in February this year.
 
     There are many factors that affect IPO listing activities and liquidity of GEM. For example, geopolitics affects global markets and capital flows, where investors' risk appetite has become more conservative, placing more attention on mature companies supported by business track records. The demand of small and medium enterprises for listing and fundraising is also affected by various external factors such as economic growth slowdown, industry prospects, market investment sentiment, interest rate policies, etc.
 
     To dovetail with the latest economic trends and corporate needs, and thereby further enhance Hong Kong's competitiveness as an all-rounded fundraising centre, the SFC and the HKEX are taking forward a comprehensive review on reforming the listing regime, including reviewing listing requirements and post-listing ongoing obligations, evaluating listing-related regulations and arrangements to improve the vetting process, optimising the thresholds for dual primary listing and secondary listing, and reviewing the market structure. The reform will study the functions and positioning of different segments to better serve the financing needs of enterprises of different types and backgrounds, including small and medium enterprises and start-ups. The HKEX and the SFC target to put forward enhancement proposals in different areas by batches when they are ready within this year for market consultation.
 
     Vetting of listing applications is an important step to review the compliance of listing applicants and maintain market quality. Its fundamental objective is to protect the rights and interests of the investing public who subscribe to the relevant stocks, especially some retail investors who may not have professional knowledge of corporate finance. According to the information of the HKEX, for the listing applications presented to the Listing Committee for consideration in the 12 months ended March 31, 2025, the median of total business days taken by the HKEX from listing application acknowledgement to issuance of hearing bundle letter was 28 days, while the median number of days required by listing applicants (Note) was 49 days. In maintaining certainty in listing schedule of enterprises, in addition to having clear and standardised procedures, efficient services provided by various professional institutions are also crucial to assist listing applicants in submitting the required information and responding to relevant issues raised by regulators. Currently, the cost of listing of enterprises mainly includes fees paid to sponsors, legal advisors, accountants and other professional services. The relevant fees are determined between listing applicants and professional institutions in accordance with market mechanism based on the circumstances of individual listing applications, which are not directly related to the requirements of regulators for approval of listing applications.
 
Note: Including the time to respond to comments from the HKEX and the regulator, etc.

Ends/Wednesday, April 30, 2025
Issued at HKT 14:30

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