The Hong Kong Stock Exchange is planning to make it harder for companies to use “backdoor listings” and shell activities to circumvent trading rules and damage investors’ confidence, Caixin reports.
“Backdoor listing” is when a relatively small-size firm that wishes to be included on an exchange, but currently does not have the resources for an IPO, acquires a listed company and then operates under its name. Also known as a “reverse takeover,” the practice has become popular amongst mainland companies that would not pass the legal and administrative barriers for their own listing.
The new proposals would not aim to completely end backdoor listings, said Hong Kong Exchanges and Clearing, but rather reduce its impact on the quality of the market.
“While shell activities are limited to a small segment of the market, these activities invite speculative trading and can lead to opportunities for market manipulation, insider trading and unnecessary volatility in the market which are not in the interest of the investing public,” the exchange said.