The bourse said in a statement that it had taken note of situations where controlling shareholders of newly listed issuers either sold, or gradually sold down, their interests shortly after the post-listing regulatory lock-up period, sometimes combined with changes to management or the nature of the business.
It believes one explanation for this phenomenon is the perceived premium attached to the listing status by the original controlling shareholder of the newly listed company, rather than a genuine need for fundraising and listing status. That could invite speculative trading when identified by potential buyers, according to the HKEX.
It may also lead to opportunities for market manipulation, insider trading and unnecessary volatility, the exchange added. Activities by such companies may even be structured to shield them from regulatory scrutiny.
“The exchange has concerns in respect of listing applicants whose size and prospects do not appear to justify the costs or purpose associated with a public listing. This raises questions regarding the reasons and justification for their listing, and therefore raises concerns regarding the suitability for such listings,” HKEX said.
David Graham, HKEX's chief regulatory officer and head of listing, said the bourse will take a proactive stance to maintain the quality and reputation of the Hong Kong market. “In addition, we are continuing to explore ways in which our reverse takeovers and cash company rules can be tightened post-listing," he added.
As a result, HKEX plans to take a more focused review if a listing applicant has certain characteristics identified in the guidance note. In such instances, it will require the applicant and its sponsors to provide a robust analysis to back up its suitability for listing.
In addition, the bourse could also impose additional requirements and may even reject the listing application.