Ahead of the upcoming Policy Address scheduled for next Wednesday, reports have emerged that HKEX is weighing the introduction of a new Chapter 18D to consolidate the Main Board and GEM Board. Chen Zhihua, President of the Hong Kong Securities and Futures Professionals Association, has voiced firm opposition, arguing that such a move would be unworkable despite the GEM board's persistent underperformance, with only 306 listed stocks and a combined market capitalisation exceeding HK$74 billion as of July this year.

While acknowledging that the GEM board's trading and fundraising functions have become clearly marginalised and require reform, Chen contends that simply folding the GEM into the Main Board fails to address the root problem. He believes that implementing such a measure would deter a multitude of start-up enterprises, who would be put off by the prohibitive listing maintenance costs associated with the Main Board.

In his interview, Chen pinpointed compliance costs as the central issue. Many GEM or Chapter 18D candidates generate minimal annual revenue or have yet to turn a profit, leaving their cash flow precarious and ill-equipped to manage the auditing and compliance requirements mandated at the Main Board level. A transition to the Main Board would entail more rigorous ESG disclosure and corporate governance standards, inevitably driving up legal and audit advisory expenses, which could potentially exceed their annual turnover. For small firms still exploring viable business models, being listed would turn into a significant liability.

Chen further highlighted the deeper problem of a mismatched regulatory framework. He argued that imposing the same exacting standards applied to Chapter 18A or blue-chip companies onto 18D small and medium enterprises is like looking for fish up a tree. Since the 2018 reform, the audit and compliance benchmarks introduced under Chapters 18A and 18C were never tailored for smaller enterprises. If HKEX is to push forward with Chapter 18D, it is essential to devise a streamlined and proportionate audit, disclosure, and compliance system.

Chen has long advocated for optimising the GEM board through differentiated listing criteria. Rather than upgrading all GEM companies en masse to the Main Board, he suggests drawing inspiration from the US Nasdaq's tiered structure, which sets listing requirements based on company size and stage of development. HKEX, he argues, must depart from a one-size-fits-all approach and genuinely craft affordable listing and continued-listing rules customised for smaller firms.

Turning to structural market reforms aimed at boosting capital inflows, Chen recommended accelerating the expansion of stock-linked futures and options coverage, actively promoting commodity futures such as gold and agricultural products, and broadening the associated delivery and warehousing infrastructure. He also stressed that stable financial policies are crucial for market confidence, cautioning that sudden hikes in account-opening thresholds or tightened restrictions on capital flows could undermine market stability.

Addressing the recent buzz around extending trading hours to a round-the-clock 24-hour schedule, Chen dismissed this as by no means an essential step to elevate Hong Kong's market competitiveness. Citing a World Federation of Exchanges research report, he pointed out that extended trading is not an inevitable or universally applicable trend, and each exchange should carefully assess its own liquidity conditions and participant mix before making such a move. Should 24-hour trading be pursued, he noted, critical issues must be confronted, including late-night staffing requirements, technical system support for continuous operations, and the challenge of listed companies fulfilling disclosure obligations outside regular working hours.