Hong Kong's IPO landscape is poised for a significant transformation, with the exchange exploring a merger of its Growth Enterprise Market (GEM) into the main board and introducing a new Chapter 18D.
In late August, sources familiar with the matter indicated that Hong Kong Exchanges and Clearing (HKEX) is studying a consolidation plan that would integrate the GEM with the main board. At the core of the proposal is a brand-new Chapter 18D under the main board listing rules, which would provide a direct listing pathway for small and medium-sized enterprises and startups that have not yet met traditional profitability benchmarks. An HKEX spokesperson responded, confirming that the first phase of measures to boost the competitiveness of the listing regime has been implemented, gaining widespread market support, and that further optimization plans will be announced in due course. Insiders noted that this reform constitutes the second-phase core of a broader competitiveness review of the listing system, with a public consultation expected to kick off before the end of 2026. If finalized, it would mark another major institutional adjustment for Hong Kong's IPO market.
The essence of this move is not an attempt to salvage the GEM but an admission of its failure, followed by a pragmatic absorption of the board into the main exchange system. Over more than two decades, the GEM's mandate has been inconsistent—initially serving as a springboard for tech firms, later devolving into a haven for shell companies, and then, after a 2018 crackdown, becoming a largely overlooked corner of the market. In the first seven months of 2026, only two companies opted for a GEM listing, with average daily turnover of HK$128 million, compared with the main board's HK$284.9 billion. This disparity is not merely a reflection of sluggish trading; it signals that market participants have already voted with their feet, effectively sealing the GEM's fate. Instead of patching up a corner, the exchange is tearing down the wall and moving occupants into the main building.
What problem does Chapter 18D aim to solve? For a small company with vision but no profits, the current main board listing threshold is nearly insurmountable. The choices have been limited: list on the GEM, which suffers from illiquidity, fundraising difficulties, and the stigma of being a secondary-tier market, or wait until profitability improves, a path many promising companies cannot afford. Chapter 18D's core logic is to offer a direct route to the main board for small firms that are genuinely operating and building businesses, even if they are currently unable to turn a profit. Its distinction from Chapter 18A (biotech firms without revenue) and Chapter 18C (large specialist technology companies) lies in the threshold—18A and 18C still impose high bars for companies with substantial cash burn but attractive sectors. Chapter 18D targets more grassroots growth enterprises, such as restaurant chains, regional e-commerce players, or new consumer brands—businesses with real operational data but modest scale. In other words, 18D does not merely lower standards; it replaces the evaluation framework. The main board has traditionally focused on "how much profit you make," whereas 18D asks, "Are you a legitimate business with growth potential?" This logic aligns more closely with the US market philosophy, allowing the market to set pricing rather than having regulators act as gatekeepers of quality.
A critical, often-understated aspect of this reform is the status of the approximately 300 existing GEM companies. All reports mention the potential for these firms to receive exemptions and transfer directly to the main board. Yet, the deeper implication is often missed: within this group, some are so-called "living dead" companies that have lingered on the GEM for years, with share prices in the cents range, almost no trading volume, and prolonged obscurity. A mass migration of these firms could temporarily dilute the average quality of the main board and potentially trigger speculative trading around a "transfer concept." However, viewed differently, this is a "cleansing consolidation" that HKEX is willing to undertake. Rather than allowing these 300 firms to continue consuming regulatory resources and sustaining a board that exists in name only, integrating them into the main board subjects them to stricter ongoing obligations and fuller market scrutiny. Those that are viable will survive; those that are not will be filtered out, which is a favorable outcome compared with leaving them in a semi-defunct state on the GEM.
Under the leadership of Bonnie Chan, the reform direction has been consistent: lower barriers, increase supply, and attract more companies to list in Hong Kong. Whether it is easing confidential submissions, reducing the WVR market cap threshold, or now pursuing Chapter 18D, the underlying logic is the same—Hong Kong's capital market challenge is not a shortage of capital but a scarcity of quality companies. The region's liquidity is abundant, yet it lacks listings that can sustain investor interest. Currently, top-tier companies are flooded with demand, while those in the middle tier and below receive scant attention. Chapter 18D aims to broaden the "mid-tier" supply base. If dozens of "small but refined" companies are listed on the main board annually, even with modest individual fundraising amounts, the ecosystem could become richer, allowing diverse investors to find suitable targets. This is a supply-side reform, betting that if there is sufficient variety and volume, a portion of the newcomers will evolve into the next wave of market pillars, rather than waiting for large companies and crowding into a few IPOs for allocation.
The most significant risk that warrants attention is whether liquidity divergence will intensify. Could the main board become another GEM? The lesson from the GEM is clear: if a board lacks liquidity, listing more companies can exacerbate the problem. If the small firms admitted under 18D are not provided with liquidity support mechanisms, a scenario could emerge where the main board hosts over 2,400 companies, with a minority dominating the bulk of trading volume, while newly listed 18D firms quickly fade into obscurity, becoming "zombie stocks" on the main board. HKEX must address a key question in its detailed rules: how can these 18D companies avoid being overwhelmed by illiquidity post-listing? Potential options include stricter sponsor accountability, enhanced post-listing supervision requirements, market-making arrangements, or preferential trading mechanisms. If the exchange merely "opens the door" without addressing what happens afterward, Chapter 18D risks repeating the GEM's trajectory.
On a more practical note, for small and medium enterprises contemplating a listing, the true value of 18D upon implementation lies not in a lower threshold but in a change of status. Companies will no longer contemplate "making do" with a GEM listing; they can directly pursue financing, partnerships, and hiring as main board-listed entities. This identity premium holds immense practical value for early-stage firms. For investors, however, a key consideration emerges: companies admitted via 18D will present greater information asymmetry. Traditional main board listings offer some level of profitability data, whereas 18D firms may only show revenue growth and cash burn rates. This means that screening will demand greater skill, and the probability of missteps will increase. Future IPO participation in Hong Kong may resemble private-market investing, requiring investors to assess companies fundamentally rather than merely perusing a few financial figures in a prospectus. HKEX's strategic gamble rests on the maturity of Hong Kong's pricing capability to distinguish quality. Whether this bet pays off will only become apparent in the years ahead.
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