SFC and SEHK issue joint statement on GEM initial public offerings

20 Jan 2017



The Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited (SEHK or the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today issued a joint statement regarding the price volatility of stocks listed on the Growth Enterprise Market (GEM). The SFC and the Exchange consider that some market practices may not enable an orderly, informed and efficient market for such securities to develop.

The SFC also issued a guideline to provide guidance to sponsors, underwriters and placing agents on the standards of conduct that is expected of them in the listing and placing of GEM initial public offering (IPO) stocks.

New applicants seeking to list on GEM should ensure compliance with all relevant GEM Listing Rules including ensuring that in relation to their securities for which listing is sought the conditions exist for an open market as well as orderly, informed and fair trading to develop at the time of listing.

The SFC or the Exchange will, where appropriate, take action against applicants, sponsors, underwriters or placing agents who fail to have appropriate policies and procedures in place to ensure the placing is conducted in a fair and orderly manner.

"The GEM Listing Rules and the SFC’s Code of Conduct contain requirements designed to ensure the integrity, quality, transparency and fairness of our markets," said Mr Brian Ho, the SFC’s Executive Director of Corporate Finance. "The joint statement and the guideline are directed at applicants, sponsors, underwriters and placing agents, all of whom have vital roles to play in upholding the quality of our listing market."

"Sponsors, underwriters and placing agents all play an important role in the listing and placing of GEM IPO stocks. Sponsors should advise the new applicant on the overall strategy and allocation basis to achieve an open market and an adequate spread of shareholders, and placing agents should put in place appropriate policies and procedures to avoid any undue concentration of shareholding," said Ms Julia Leung, the SFC’s Executive Director of Intermediaries Division.

"This joint statement is an initial step to address some of the current concerns with GEM IPO placings while we continue to work on a broader GEM reform," said Mr David Graham, Chief Regulatory Officer and Head of Listing at HKEX.  "Meanwhile, the SFC or the Exchange will make enquiries if there are concerns that the holdings of the placing securities are overly concentrated."

Investors are reminded that GEM is a market designed to accommodate companies that involve a higher investment risk than other companies listed on the Exchange.  They should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration.

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Page last updated : 20 Jan 2017