This undated photo shows Hong Kong Exchanges & Clearing Ltd. in Hong Kong, China. (BILLY H.C. KWOK / BLOOMBERG)
HONG KONG – The Stock Exchange of Hong Kong Ltd announced Thursday that it will raise the profit threshold for companies seeking to go public on its main board in what was the first such revision since 1994.
There will be a 60 percent increase in the profit requirement from the current level to HK$80 million (US$10.3 million) for the minimum combined profits over the past three years, taking effect from Jan 1, 2022, the exchange, wholly-owned by Hong Kong Exchanges and Clearing Ltd (HKEX), said in a statement.
HKEX stressed the need for the re-evaluation as the current profit requirement "has been exploited in some cases of misconduct, which threaten to undermine the quality of the market"
The bourse stressed the need for the re-evaluation as the current profit requirement "has been exploited in some cases of misconduct, which threaten to undermine the quality of the market."
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Apart from the higher profit requirement, another revision to the listing rules was also unveiled with the goal of strengthening the exchange's powers to hold accountable and impose appropriate sanctions on individuals responsible for misconduct and breaches of listing rules, taking effect from July 3, 2021.
Hong Kong's securities watchdog backed the revision by the exchange.
In a joint statement with HKEX on IPO-related misconduct, the Securities and Futures Commission (SFC) said the move is aimed at tackling "suspected arrangements to artificially satisfy the initial listing requirements or facilitate market manipulation of the shares at a later date."
The SFC in particular cited an increasing number of suspected "ramp-and-dump" schemes in Hong Kong, which is a form of stock market manipulation related to IPOs.
"We are committed to upholding and enhancing market quality as well as to promoting investor protections," said Bonnie Chan, HKEX's head of listing.
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"Robust gatekeeping, together with targeted post-listing regulation, are crucial in achieving this, providing more clarity and transparency to the market on our regulatory and enforcement responsibilities," Chan said.
Chan express the belief that the revised rules will benefit the Hong Kong capital markets as a whole, further strengthening Hong Kong's role as Asia's premier international financial center.