Editors’ Note

Abstract

What is the right balance between regulation to protect investors, and flexibility to promote growth, both in the economy and in individual businesses? This is a question that echoes throughout this issue’s articles—one that is also at the forefront of regulators’ minds here in Asia. When I last wrote an editorial note a year ago, I mentioned that, in a bid to lure large technology listings, change was on the horizon for listing regulation here. That change has happened … and some! In May this year, the Hong Kong Stock Exchange adopted new rules allowing the listing of the following three categories of companies to its Main Board: (i) pre-revenue or pre-profit biotech companies that do not meet the financial eligibility tests currently required to list on the Main Board (provided certain other criteria are met); (ii) companies that are both high-growth and innovative and have weighted voting right (WVR) structures; and (iii) Greater China and international companies wishing to have a secondary listing in Hong Kong. These changes were controversial—particularly the decision to permit weighted voting rights in contravention of the long held one share one vote principle. Nevertheless, the new regime has already begun to stimulate listings in Hong Kong. A number of early stage biotech companies have filed listing applications under the new regime in the first half of 2018, and in July, China’s smartphone giant, Xiaomi, became the first high growth and innovative company with a weighted voting rights structure to be listed in Hong Kong under the new rules and raising US $4.72 billion in the process. Additional companies with weighted voting rights structures have also filed listing applications. Buoyed by positive market sentiment and these regulatory changes, there were close to 60 applications for listing filed with the Hong Kong Stock Exchange in the first half of 2018, a substantial increase compared with the same period in 2017.