In September 2023, the Stock Exchange of Hong Kong Limited (the “HKEX”) published a Consultation Paper on GEM Listing Reforms (the “Consultation Paper”), which seeks to invite comments on the proposed reforms to the GEM board on the HKEX, which shall be effective from 31 December 2023.
 
What are the major proposals?
 
Some key changes are listed below:
1. Implementing a new eligibility test targeting high growth enterprises that are heavily engaged in research and development (R&D) activities.
2. Launching a new transfer arrangement enabling qualified GEM issuers to transfer to the Main Board without needing to appoint a sponsor to carry out due diligence, nor to produce a “prospectus-standard” listing document.
3. Aligning continuous obligations with those of the Main Board, such as removing the requirement of providing mandatory quarter report and shortening the lock-up period for controlling shareholders.
 
The detailed proposed changes are set out below:
 
Proposed New Eligibility Test
 
Market HKEX GEM
Existing requirement Proposed new and additional eligibility requirement
Market Capitalisation ≥HK$150M ≥HK$250M
Cash Flow ≥HK$30M (in aggregate for last two financial years) Nil
Revenue   ≥HK$100M (in aggregate for last two financial years; with year-on-year growth over the two financial years’ concerned)
R&D Expenditure   ≥HK$30M (in aggregate for last two financial years) + 15% total operating cost (for each of the two years)
 
 














Proposed New Streamlined Transfer Mechanism
  
Market HKEX GEM
Existing requirement New proposed Requirement
Eligibility test Must meet all qualifications for listing on the Main Board, plus Must meet all qualifications for listing on the Main Board, plus
appointment of sponsor √ x
publication of a “prospectus – standard” listing document √ x
minimum daily turnover - A period of 250 trading days immediately before the transfer application (“Reference Period”) is introduced, and at least 50% of the Reference Period  must meet  the threshold of HK$50,000 or HK$100,000
volume weighted average market capitalisation - Needs to be satisfied during the whole Reference Period (i.e. at least HK$500 million)
publication of transfer announcement, pre-vetted by HKEX - √
Track Record of Listing One full financial year after GEM listing Three full financial years as a GEM issuer prior to transfer
 
 





















Proposed Reforms on other aspects
  
Market HKEX GEM
Existing requirement New proposed Requirement
Post-IPO Lock Up for Controlling Shareholders 24 months 12 months
Periodic Reporting Quarterly, interim and annual reporting Interim and annual reporting only
One Executive Director to Act as Compliance Officer At all times No longer required
Appointment of Compliance Adviser (CA)/Sponsor Must retain CA until publication of its results for the second full financial year after listing Must retain CA until publication of annual report for first full financial year
 












Conclusion
 
In view of rejuvenating the transactions at GEM in an orderly manner, HKEX seeks to provide an easier way for new technology company to go public by proposing the new eligibility test for GEM listing, with a threshold much lower than the Chapters 18A and 18C regime. The route to transfer of listing to Main Board by quality GEM issuers is also made easier under the alternative streamlined transfer mechanism, so to provide incentive for existing GEM issuers to improve their performance.