In a successful start to Listing Rule consultations over the internet, readers of 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
9 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 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 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

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'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."


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.

©, 2000

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