HKEX considering broader rules on reverse takeovers

HONG KONG (Reuters) - Hong Kong’s stock exchange may implement stricter rules to prevent companies sidestepping scrutiny of reverse takeovers (RTOs) and backdoor listings as part of a broad review of listing rules in the city, a top bourse official said.

David Graham, chief regulator officer and head of listing at the HKEX, speaks to Reuters journalists during the Reuters Financial Regulation Summit in Hong Kong, China, May 19, 2016. REUTERS/Elzio Barreto

Exchange officials have held talks with market regulator Securities and Futures Commission and started discussions within its own listing committee on the issue, David Graham, chief regulatory officer and head of listing at the Hong Kong Exchanges & Clearing Ltd (HKEX) 0388.HK, told the Reuters Financial Regulation Summit on Thursday.

Proposed changes could be put for consideration with market participants later this year, although no time table has been set.

HKEX published revised rules in 2014 and 2015 to make it harder for companies to find an easy way to list through local shell companies with large asset injections or large cash injections. But RTOs become harder to track when they’re done in smaller increments over a longer period of time, Graham said.

“We’re looking at, going forward...whether we draft a broader anti-avoidance provision, which would give us the tools to try and capture those types of activities as well,” said Graham.

The HKEX is also looking to toughen its stance on companies with long trading suspensions, he added. Only 54 out of nearly 1,900 companies listed on the main board and the Growth Enterprise Market (GEM) of the exchange have had their trading suspended for three months or longer, but such suspensions impact the market’s quality, Graham said.

While previously the exchange would give those companies “quite a bit of latitude” with the timing to start a delisting process, that may be about to change.

“What we’re going to consider, recognizing this is an issue in the market, is we will take a more robust approach, which means we’re going to more readily press the button to start a delisting process than we have historically,” Graham said.

As part of a review of the GEM board, the exchange may look at eligibility requirements for listings, including increasing the minimum number of independent shareholders or requiring companies to also sell shares in a retail tranche during initial public offerings, Graham said.

Other potential changes could also involve rules for companies looking to shift their listing from the GEM to the main board.

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Reporting by Elzio Barreto and Michelle Price; Additional reporting by Lisa Jucca; Editing by Muralikumar Anantharaman