HONG Kong Exchanges and Clearing (HKEx) is studying the possibility of
delisting penny stocks in an attempt to improve market efficiency.
The study, which would be completed by the end of the year, would
focus on the requirements a listed company has to comply with
continuously, chief executive Kwong Ki-chi said.
"Those issues include how to deal with the listed company if its
stock price drops to a very low level and the operation of a delisting
Kwong said the exchange had not yet reached any conclusions, but would
discuss the issue with the Securities and Futures Commission after the
study. HKEx expected to issue a consultation paper by the end of the
Penny stocks in Hong Kong generally refer to those small market
capitalisation and illiquid stocks.
Their prices are consistently trading at a few cents or below.
Examples include Skynet International Group and 401 Holdings.
The core businesses of most penny stock companies are so poor they are
unable to attract new investors, and in other markets they would be
Nasdaq-listed companies are delisted if their stock prices fall below
US$1 (HK$7.80) for more than a month.
In China, the regulator will delist a company if it remains
unprofitable for three years in a row.
Unlike the United States and China, the local bourse does not have
delisting mechanisms for penny stocks.
Although a delisting mechanism may improve the quality of listed
companies, market players fear this would affect the holdings of small
"Many penny stocks are actually listing shells awaiting for some
white knights to show up," Tai Fook Securities' executive director
William Lee said. "Investors could hardly get their money out from
the company if it is delisted."
David Sun, chairman of the corporate governance committee with the
Hong Kong Society of Accountants, agreed.
"If a company is delisted, its minority shareholders may unload their
shares only if they wait until the company liquidates," he said.
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