The Hong Kong Stock Exchange (HKEx) has concluded its consultation on GEM listing reforms. All reform proposals were approved with minor modifications and will go into effect 1 January 2024.
Key features of the GEM listing conclusions provided by the HKEx are summarised below.
New Alternative Eligibility Test for R&D Intensive Companies
HKEx has adopted a new alternative eligibility test for initial listing on the GEM board, targeting high-growth enterprises that are heavily engaged in research and development (R&D) activities but do not have a sufficient track record of positive operating cash flow for the current listing requirements.
HKEx has clarified that the new alternative eligibility test is open to companies from all types of industries. Any company with substantial R&D investment in its own discipline will be able to apply for a GEM listing using the above test.
Key points are summarized below for this alternative “market capitalization/revenue/R&D test.”
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Requirements |
Existing Test |
New Alternative Test |
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Track record |
Trading record |
2 full financial years |
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Ownership continuity |
1 full financial year |
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Management continuity |
2 full financial years |
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Expected market capitalization at listing |
≥HKD 150M |
≥HKD 250M |
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Cash flow (2-year aggregate) |
≥HKD 30M |
/ |
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Revenue |
2-year aggregate |
/ |
≥HKD 100M |
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Year-on-year growth |
/ |
Required |
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R&D expenditure |
2-year aggregate |
/ |
≥HKD 30M |
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% of total operating expenditure |
/ |
≥15% each year |
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The post-IPO 24-month lock-up period imposed on controlling shareholders of GEM issuers will be shortened to 12 months.
This reduction will result in GEM being consistent with Main Board requirements, where the controlling shareholders of an issuer are not able to dispose of any of their interests in the issuer within the first six months of listing and are not able to dispose of any interest in the second six months that would result in their no longer being a controlling shareholder. With shell activities having largely ceased, the HKEx stated that the previously extended lock-up period is no longer necessary and that its reduction may help enhance liquidity.
Compliance Officer and Compliance Adviser
The HKEX has highlighted the importance of aligning the ongoing obligations of a GEM issuer’s compliance officer and compliance adviser with those of the Main Board as most GEM applicants are relatively well established at the time of their listing in addition to the fact that the ongoing obligations of Main Board issuers and GEM issuers are almost identical.
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Existing Requirements |
New Requirements |
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Compliance officer appointment |
One of the executive directors |
Not required |
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Period of compliance adviser engagement |
Ends when issuer publishes its second full financial year’s results |
Ends when issuer publishes its first full financial year’s results |
Periodic Reporting Requirements for GEM Issuers
HKEx will adopt the proposals to remove quarterly financial reporting as a compulsory requirement for GEM issuers. It will also align with current requirements for Main Board issuers by extending the deadline for GEM issuers to publish their (a) annual reports, (b) interim reports, and (c) preliminary announcements of results for the first half of each financial year.
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Existing Publishing Deadline |
New Publishing Deadline |
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Annual reports |
Three months after the financial period ends |
Four months after the financial year ends |
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Half-year reports |
45 days after the financial period ends |
Three months after the first six months of the financial year end |
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Quarterly reports |
45 days after the financial period ends |
Recommended only as a best practice in the GEM’s Corporate Governance Code |
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Preliminary results announcement of first six months of a financial year |
45 days after the first six months of the financial year end |
Two months after the first six months of the financial year end |
HKEx has confirmed that GEM issuers will be able to choose the existing transfer route for a quicker transfer, provided that the benefit of doing so outweighs the cost of sponsor due diligence and the production of a “prospectus-standard” listing document.
The following is an overview of the proposed requirements for GEM issuers under the streamlined approach:
Proposed Streamlined Transfer Mechanism
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Existing Requirements |
New Requirements |
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Main Board qualifications |
A transfer applicant must meet all of the qualifications for listing on the Main Board. |
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Sponsor appointment/due diligence |
A transfer applicant must appoint a sponsor at least two months before submitting a transfer application. |
A transfer applicant will not be required to appoint a sponsor to conduct due diligence for its transfer. |
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Track record |
A transfer applicant must have published its financial results for the first full financial year commencing after the date of its initial GEM listing. |
A transfer applicant must have published its financial results for the three full financial years as a GEM-listed issuer before its transfer, with (1) ownership continuity and control and (2) no fundamental change in its principal business throughout that period. |
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Listing document/ |
A transfer applicant must issue a “prospectus-standard” listing document. |
A transfer applicant will not be required to issue a “prospectus-standard” listing document. A transfer applicant must instead submit the following application documents to the Listing Division:
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Compliance record |
A transfer applicant must not have been the subject of any disciplinary investigation by HKEx in relation to a serious breach or potentially serious breach of any GEM Listing Rules in the 12 months preceding the transfer application and up until the commencement of dealings in its securities on the Main Board. |
A transfer applicant must (1) not have been held to have committed a serious breach of any listing rules in the 12 months preceding the transfer application and (2) not be the subject of any investigation by HKEx or any ongoing disciplinary proceedings under Chapter 3 of the GEM Listing Rules in relation to a serious breach or potentially serious breach of any Listing Rules as at the date of the transfer application and the date when dealing in its securities commences on the Main Board. |
Daily Turnover Test
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Definitions |
Daily Turnover: Total value of an applicant’s GEM shares traded on a trading day |
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Minimum Turnover Threshold: HKD 50,000 |
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Reference Period: The 250 trading days immediately before the transfer application and up until the commencement of dealings on the Main Board |
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The Test |
A transfer applicant must have reached the Minimum Turnover Threshold on at least 50% of the trading days over the Reference Period. |
Volume Weighted Average Market Capitalization Test
In addition, the HKEx decided to exempt a transfer applicant from the Main Board’s initial listing fee. Such exemption could lower the cost of transfer to the Main Board and help incentivize use of the streamlined transfer mechanism.
Existing GEM issuers should take note of the following:
Given the decline in the number of new listings and funds raised on GEM since 2019, the reforms are overall a positive step towards revitalizing GEM. The new listing requirements will help reduce compliance costs for current GEM issuers whilst upholding market quality and ensuring investor protection.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: