Hong Kong Securities and Futures Association Chen Zhihua: Suggest optimizing GEM to establish differentiated listing standards. Merge the main board with the GEM board is not feasible

The Zhitong Finance App learned that Hong Kong's new “Policy Address” will be published next Wednesday (16th). Earlier, it was reported that the Hong Kong Stock Exchange (00388) is studying adding section 18D to the listing rules and merging the main board with the GEM board. Chen Zhihua, chairman of the Hong Kong Securities and Futures Association, said that although he believes that the GEM board's performance continues to be sluggish. As of July this year, there are 306 shares. The total market value of GEM is over HK$74 billion. GEM's fund-raising function is clearly marginalized and necessary However, the simple integration of the GEM board into the main board is not a remedy for the symptoms, and it is believed that if the Hong Kong Stock Exchange implements the above measures, many startups will be deterred by the high cost of maintaining a listing on the main board.

In an interview, Chen Zhihua pointed out that the core issue is the cost of compliance. Those GEM/18D startups with meager annual revenue or no profit are already tight on cash flow, making it difficult to cope with audit and compliance requirements at the motherboard level. Moving to the main board means complying with stricter ESG disclosures and corporate governance standards. Legal and audit consulting fees are bound to rise, and related expenses may far exceed annual revenue. For small companies that are still exploring business models, listing becomes a heavy burden.

He added that the deeper problem is the mismatch of the regulatory framework. He believes that if the scale of managing 18A or blue chip stocks is fixed to 18D SMEs, it is tantamount to fishing for fish. He also pointed out that Chapter 18A and Chapter 18C introduced after the Hong Kong Stock Exchange's 2018 reform, the two audit and compliance standards have never been tailored to SMEs. He believes that if the Hong Kong Stock Exchange is to promote Chapter 18D, the key is to design a lightweight and proportional audit disclosure and compliance system.

He said that he has always advocated optimizing GEM and establishing differentiated listing standards. Instead of collectively upgrading GEM to the main board listing, it is better to draw on the US NASDAQ hierarchical system, set relevant listing requirements for companies of different sizes and stages of development, and indicate that the Hong Kong Exchange requires abandoning a one-size-fits-all mentality to truly tailor affordable listing and maintain listing rules for SMEs.

In terms of market structural reforms, in terms of increasing capital inflows, Chen Zhihua suggested speeding up the expansion of the coverage of equity-linked futures and options, and actively developing commodity futures such as gold and agricultural products, while broadening related delivery and warehousing networks. He also pointed out that financial policy stability helps market confidence. If account opening thresholds are suddenly raised or restrictions on capital entry and exit are tightened, it may have an impact on market stability.

Regarding the recently hotly discussed plan to extend the trading period to 24 hours, Chen Zhihua said that 24-hour trading is by no means necessary to boost the competitiveness of the Hong Kong market. Citing the World Federation of Exchanges research report, extended trading is not inevitable and is not generally applicable. Each market should carefully evaluate its own liquidity situation and participant structure, and indicated that if they want to implement 24-hour trading, they need to face up to the following issues: late-night manpower allocation, round-the-clock operation of technical system support, and disclosure responsibilities of listed companies during non-working hours.