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Reflections on Our New Listing Regime, One Year On.

Updated: 22 May 2019
Charles Li Direct Page

Just over a year ago, we ushered in some of the biggest changes to Hong Kong’s listing regime in a quarter century, welcoming pre-revenue biotech firms and innovative companies with weighted voting rights to our markets, and making secondary listings on our market easier. Today, we are celebrating the early success of our efforts – with over $90 billion in funds raised via the new listing chapters, cementing Hong Kong’s position as the listing market of choice for new economy companies. Yet we know that there is more we can do to further raise our competitiveness, and make us even more attractive to potential issuers. After all, we made these comprehensive changes to embrace a whole new generation of companies.

On its first anniversary, there is naturally much interest on how the new regime has done, and I have received many questions from interested parties on how I would rate the new regime’s performance. Below I have attempted to give a status check of where we are, as well as to highlight some of our upcoming plans.


Have the changes brought about by the new Listing Rules met your expectations?

We are very happy with the initial results of our listing reforms. I am delighted that over 40 new economy companies have listed in our markets since the new regime took effect, raising a total of over HK$150 billion, and accounting for more than half of the total IPO funds raised on our market during the period. Some of these companies listed via our new listing regime, but some did not, but undoubtedly our commitment to the new economy has generated greater interest among prospective issuers in the Mainland and abroad.

We have only been focused on biotech companies as a sector for a year and already Hong Kong has become the world's second-biggest biotech listing venue, welcoming nine biotech companies in 12 months. This includes seven pre-revenue companies that raised a total of HK$22.3 billion through the new listing chapter. A further 10 biotech firms have already submitted listing applications, and we expect the pipeline to continue to be strong. More importantly, we are seeing Hong Kong's biotech ecosystem taking shape. Hong Kong's capital market is attracting more professionals with biotech industry expertise, including analysts, investors and consultants, testament to our efforts to develop our city as a global biotech finance centre.

The listing reforms are one step in our continued commitment to make our listing regime even more attractive and relevant. We still have plenty of work to do, as we seek to further improve the vitality of our markets to better meet the needs of local and global investors and issuers.


What else does HKEX have in store to further optimise the IPO process?

We continually assess our offering as an IPO hub and are currently considering a number of enhancements to help further improve the IPO market’s overall efficiency. Following our listing reforms, the Listing Committee of the Stock Exchange of Hong Kong has set up a subcommittee to look at this. The subcommittee is exploring the feasibility of possible revisions to IPO processes in six areas: Double-Dipping, Cornerstone Investors, Placing Guidelines, Pre-IPO Investments, Clawback Mechanism and Pricing Flexibility. We are working closely with the subcommittee and seeking preliminary feedback from market participants to help make Hong Kong an even more attractive venue for ambitious companies, and global investors.

We are also studying ways to shorten the current IPO settlement process, to allow IPO pricing to more accurately reflect the market environment. Currently, in Hong Kong there is typically five business days between IPO pricing and listing (commonly known as T+5). That compares with just one business day (or T+1) in the US and the UK. Amid volatile market conditions, five business days can be a very long time!

We are undertaking these comprehensive studies to better reflect the modern needs of our market. While legacy systems have served us well, global markets have gone through many changes in recent years. We also expect improvements to come to our IPO and broader market through our focus on new technology adoption, such as the use of artificial intelligence. 

The reforms we are contemplating may be small tweaks that could be implemented sooner, or more significant changes that may result in notable changes to our Listing Rules. The latter would require in-depth discussions with our regulator and broader stakeholders, as well as detailed market consultations. Wherever we end up and whatever we do, we look forward to engaging with our stakeholders to build consensus in the coming months.


What more can HKEX do to attract biotech issuers to our market? As a market it still lags New York.

New York has been at this a lot longer than Hong Kong, but we are already making a major impact. What we must continue to do is strive to create a sustainable biotechnology ecosystem that will attract all types of biotech issuers, investors, analysts and industry experts from the world over to our market in Hong Kong. 

We need a critical mass of biotech companies listing in Hong Kong to do this, providing investors with abundant investment options. We’ve already welcomed an encouraging number of biotech companies over the past year, and we have a very healthy pipeline. I have no doubt that the region will become one of the world’s biggest healthcare and biotech centres, fueled by China’s deepening health-care reforms, growing regional demand for quality medical care, and heightened by new innovations and development in Asian biotech.

To build Hong Kong’s biotech ecosystem, the investment and finance community must deepen its understanding of the drivers and characteristics of this sector. And HKEX is committed to playing a leading role in this. Next week (28-30 May), we will host HKEX Biotech Week, welcoming over a thousand scientists, entrepreneurs, investors, analysts and policymakers from around the world. Following last year’s hugely successful Biotech Summit, we are expanding the conference, inviting leaders from the global scientific and financial communities to discuss the latest trends in the biotech industry. In addition to keynote speeches from Nobel Laureates and Turing Award winners, experts will also share their in-depth research on the application of big data and new technologies on the biotech industry. Going forward, we will host more such events to help investors and the broader community better understand the dynamics of this innovative industry.


Will the launch of the new Technology and Innovation Board in Shanghai threaten the Hong Kong market’s attractiveness for new economy issuers? How do you see competition with the Tech Board?

In short, we actually see this as good for the whole region. The relationship between Hong Kong and Mainland capital markets has always been complementary. The wider opening of the Mainland market has knock on benefits for Hong Kong, so this is not a zero sum game. China has entered a new era of innovative entrepreneurship, with the emergence of many new economy companies, and their development requires the support of a well-developed capital market. Shanghai’s new Technology and Innovation Board aims to serve this need, contributing to the nation’s capital market reforms. I sincerely hope that the Tech Board can continue to forge a new path to support the development of China’s new economy companies.

In Hong Kong, we have a different proposition and we have many unique advantages that are attractive to issuers: Capital is completely free to move in and out of our market, and thanks to recent initiatives such as our landmark mutual market access programme with Mainland exchanges, the market has abundant liquidity. We also have clear listing rules, a transparent and predictable listing process, flexible and convenient refinancing options, and for Chinese companies seeking to go abroad, Hong Kong provides an exciting platform for international marketing. We also have a broad and diverse ecosystem that supports companies at every stage of their lifecycle.

Further, some companies may consider dual-listing their shares in Hong Kong and on the Tech Board. And, if the issuers listed on the Tech Board do get included to the Shanghai-Hong Kong Stock Connect, more international investors will be attracted to invest in the Mainland through Hong Kong, ultimately enhancing our appeal as an investment hub and as an issuer platform. 

I have every confidence in the future of Hong Kong's listing market, and as long as we continue to work to make the market more liquid, more competitive, and more efficient, I do not see Hong Kong becoming less attractive.


Hong Kong was the world’s biggest IPO fundraising hub in 2018, but just a few months into 2019, its ranking has dropped to Number 3. Could Hong Kong still claim the IPO crown this year?

Hong Kong has been the world’s leading IPO fundraising centre for six out of the last 10 years. The Hong Kong market has also ranked first globally in terms of total IPO funds raised over the past 10 years. This performance is a result of Hong Kong’s unique structure as a market and its unrivalled ability to welcome China’s most exciting businesses. China’s strong economic development and the increase in corporate demand for overseas financing have fueled this expansion. In the last two years in particular, we’ve seen a much higher proportion of listings of new economy companies, thanks in large part to China’s scientific and technological innovations. Since the start of this year, demand for listings in Hong Kong’s market has remained very strong, with large multinational companies planning to list as well as the increased interest in the biotech sector.

While winning the annual IPO crown is definitely worth celebrating, we have never set our goals on short-term rankings. It is the long-term trends and characteristics of a market that define its ability to attract capital: this determines its vitality and competitiveness.  

HKEX sits at the heart of Asia’s financial markets, and as a market operator, HKEX’s role is to develop and maintain infrastructure, provide quality services, to remove any perceived barriers and to provide fair and transparent listing platforms. I have always believed that, as long as we perform our role well, issuers will come to Hong Kong. Our goal should really be about striving for constant improvements as we make our markets more attractive.


HKEX’s new Strategic Plan specifically mentions the need to attract large overseas issuers to the Hong Kong market. What specifically will be done?

Our strategic initiatives, especially our Connect programmes with Mainland Chinese exchanges, have greatly enhanced Hong Kong’s attractiveness to international investors. We believe Hong Kong’s international relevance and importance will continue to rise, as the weighting of China’s equities and bond markets on international indices further increases. At the same time, strong economic development in the region, particularly in Southeast Asia, will drive more global investments to the region. We will seize on these opportunities by enriching our suite of products, as well as encouraging more global and regional companies to capitalise on the advantages of a Hong Kong listing. By doing so, we hope to attract more global investors interested in investing in Asia Pacific firms, as well as more Chinese investors seeking international investment opportunities.

We are currently in discussions with Mainland regulators hoping to gradually include international companies in Stock Connect. We are also evaluating the expansion of the number of jurisdictions from which we would welcome listings. This presents an exciting new opportunity for us, and will reinforce our position as Asia’s premier financial market.


Some investors have commented about the secondary market performance of new economy listings, and questioned the success of the listing reforms. What are your views?

The performance of new shares post listing is very much a function of the market. Pricing, demand, wider market sentiment, and timing all play a role. What is important is that we provide a well-regulated transparent market, that we provide secondary market liquidity, and that we seek to support companies as they grow. So far, the new listing rules have exceeded our expectations and we very much look forward to the journey ahead.