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In a successful start to
Listing Rule consultations over the internet, readers of Webb-site.com
have made their views known to GEM. By the deadline
of 30-Jun-00, 55 submissions had been made, with a further 6 received in
the week after the deadline. The total is 3 times the number of
submissions that might typically be received by the Exchange. Here's what
you had to say... |
Your views on GEM's Rules
9th July 2000
A big thank you to those who put their names on the record and
made their views known to GEM. This internet-based submission project has been a
big success, and we hope that even more readers will contribute to the
development and shaping of our markets in the future.
Sources tell Webb-site.com that in a typical consultation of this nature, the Exchange might
receive only 20 submissions. Even the original 1998 consultation on the proposed
second market (which became GEM) received only 39 submissions. We know, because Webb-site.com
editor David Webb was on the committee which designed GEM.
This time, our readers have made 61 submissions,
including 55 by the formal deadline of 30-Jun-00. So your views should surely
carry some weight. Of these submissions, the vast majority were in agreement with our views and
proposals, and numerous additional comments were made.
One of the big problems with these consultation exercises is
that the Exchange seldom publishes the results, but just proceeds with drafting
rules (and usually at a snail's pace). We are still waiting for some of the
results of the May-99 main board consultation exercise. This lack of
transparency makes it difficult to know whether the views expressed by public
submissions have any real effect. We can at least accelerate the debate by
publishing extracts from your submissions. They are reproduced here without
endorsement by Webb-site.com.
Corporate Governance
On the general issue of corporate governance, a reader wrote:
"International investors will increasingly
apply a substantial risk premium to markets with lax disclosure laws and poor
corporate governance. If markets in Hong Kong adopt best international practice
in these respects their attractiveness will increase, not diminish, as investor
confidence results in enhanced liquidity for new listings. At the moment GEM
listings are capturing the same pool of highly speculative liquidity put on Race
6 at Happy Valley; this has not resulted in a stable, deep market."
While a HK-based reader wrote:
"I agree totally with Webb-site.com's
submission - especially with respect to the LOCK-UP provision. Quite frankly the
rules are a joke! It has resulted in one great big get-rich-quick pyramid scheme
and this does not reflect well on HK's reputation as a mature financial
centre."
A HK-based media columnist wrote:
"The biggest single danger of relaxed
listing rules for GEM is that while they may appear to bring listing
requirements in line with those of Nasdaq and similar exchanges abroad, Nasdaq
offers relaxed requirements within a general environment in the US of
comprehensive protections for investors through other agencies while we in Hong
Kong have much weaker equivalents of these comprehensive protections. Our stock
exchange needs to have tighter and better enforced listing restrictions because
we do not have them elsewhere."
Allocation of pre-IPO and IPO placings
A HK-based journalist wrote:
"Rules should also prevent executives of investment
banks, whether or not connected to new issues, being allotted any shares in a
period of one year prior to listing at any price less than 70% of the IPO
price unless they can demonstrate that they have been genuinely and actively
involved in the creation and management of the business.
Former Securities Commissioners and senior staff of the SFC
should be disbarred from beneficially owning stakes in GEM IPOs or accepting
executive positions with promoters."
While a HK-based fund manager wrote:
"As a fund manager and having been burnt by a couple of
GEM listings at present I am not willing to subscribe to any GEM IPO. To make
me invest in the future I require only one change that is the following very
simple statement. Any share or option issued 12 months before the IPO at a
price lower than the IPO price cannot be sold for a period of six months after
the listing."
Share options
On the subject of options, an employee of a local brokerage
proposed more flexibility:
"Rather than permitting to issue 0.5%
options in 10 years, more flexible to issue 5% at one time but exercisable in 10
years - this locks the exercise price but ties the option holder to continue
service if full benefits of options are to be reaped."
While a staffer with a dot-com wrote:
"I believe that eligible participants should be
restricted to full time employees of the company AND members on the Board of
Directors whether executive or independent).
I do not support the view that options should be granted to
suppliers and clients of the companies - unless there is supplementary
information that would allow the investor to compare like company’s
performance. Without adequate disclosure the rule would allow companies to
manipulate their gross profits and make any meaningful comparison for the
average investor meaningless."
Public offer
Two readers disagreed with our view that this should be a matter
for the company and its sponsor to decide. One wrote:
"A minimum public offer of 10% should be compulsory with a clawback
mechanism depending on the level of public subscriptions. The level of
clawback should be similar to that of the main board. There should also be the
added requirement of disclosure of substantial private placements and
percentage of issued capital being allocated to each placee."
Lock-up
A director of a local investment manager wrote:
"The lock up period should remain at 2
years. Young companies need a lot of nurture and management time and 6 months is
just a ridiculously short period. The purpose of GEM is to provide a funding
vehicle for young companies to raise capital, not for the controlling
shareholders and initial management to have a grand exit and then go on to some
other projects. As minority investors, we would like to see focused and
committed management team."
So there you have it. The public has spoken. Now we await GEM's
response.
© Webb-site.com, 2000
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