Hong Kong’s Main Board and GEM: Why a Merger Is Being Considered and What It Could Mean

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Hong Kong’s proposed “GEM merger” does not mean that all Hong Kong-listed stocks would be combined into one market. The discussion concerns the possible integration of the Growth Enterprise Market, or GEM, with the Main Board of the Hong Kong Stock Exchange.

On August 27, 2026, the South China Morning Post reported that Hong Kong Exchanges and Clearing was exploring the possibility of absorbing GEM companies into the Main Board framework through a proposed new Chapter 18D of the Listing Rules. The report said the proposal could be included in the second phase of Hong Kong’s listing-regime review and might be put out for public consultation before the end of 2026. At this stage, however, the idea remains under consideration rather than an approved market reform.

Official HKEX data also show that the Main Board and GEM remain separate markets. As of June 30, 2026, the Main Board had 2,443 listed companies, while GEM had 305. During the first half of 2026, 86 companies were listed on the Main Board compared with only one on GEM.

Why Is Hong Kong Considering a GEM Merger?

The main reason is that GEM has struggled to fulfil its original purpose.

GEM was designed to give smaller and faster-growing companies access to public capital before they were large enough for a traditional Main Board listing. In theory, it was supposed to function as a pathway for emerging businesses, allowing them to raise funds, develop their operations and eventually graduate to the Main Board.

In practice, GEM has attracted relatively few new listings and limited investor attention. The weak IPO pipeline has made the board less important as a source of new capital, while low trading activity has reduced its appeal to companies considering a listing.

The problem is not necessarily that Hong Kong lacks small and medium-sized enterprises. The larger issue is that many companies may not see enough benefit in listing on a market where trading liquidity, analyst coverage and institutional participation are limited.

A company can technically obtain a listing and still find it difficult to raise meaningful capital afterward. If investors rarely trade the stock, the company may receive little benefit from having publicly listed shares. Weak liquidity can also make it more expensive for companies to issue new shares, conduct acquisitions or attract institutional investors.

The Difference Between GEM and the Main Board Has Narrowed

Another reason for a possible merger is that the regulatory distinction between GEM and the Main Board has gradually become less clear.

On January 1, 2024, HKEX introduced a series of GEM reforms. These included a streamlined transfer mechanism that allowed eligible GEM companies to move to the Main Board without appointing a sponsor to conduct a new full due-diligence exercise or preparing a prospectus-standard listing document. HKEX also introduced an alternative market-capitalisation, revenue and research-and-development test for certain high-growth companies, reduced the controlling shareholder lock-up period to 12 months and removed mandatory quarterly reporting requirements.

The reforms were intended to make GEM more attractive to small and medium-sized enterprises while reducing compliance costs for existing issuers. They also brought several continuing obligations closer to those of the Main Board.

That created a structural question. If GEM and the Main Board increasingly operate under similar rules, while investors still perceive GEM as a weaker and less liquid market, does it make sense to maintain GEM as a completely separate board?

From HKEX’s perspective, integrating the two markets could simplify the exchange’s structure and reduce confusion for companies and investors. Rather than continuing to operate a separate GEM board, the exchange could create a dedicated chapter within the Main Board for smaller or higher-growth businesses.

A Merger Would Probably Not Mean an Automatic Upgrade for Every GEM Company

The word “merger” may create the impression that every GEM company would immediately receive the same status as a large, established Main Board company. That is unlikely to be the most realistic interpretation.

The most plausible model is a hybrid structure in which GEM loses some or all of its separate branding but smaller companies continue to be governed by special rules under a new Main Board chapter. The proposed Chapter 18D could provide a tailored route for companies that are too small or too early-stage for the traditional Main Board but still meet defined standards for public ownership, financial reporting, corporate governance and business quality.

This interpretation is based on the reported proposal and HKEX’s previous approach of creating specialist chapters for companies with different characteristics. It is not yet a confirmed design.

Existing GEM companies would also be unlikely to receive an unconditional upgrade. Under the current streamlined transfer rules, a GEM issuer seeking to transfer to the Main Board must meet the relevant Main Board listing requirements as well as additional conditions.

Any final merger plan would therefore need to explain how existing companies would be treated. The rules could include grandfathering provisions, transition periods or different categories for companies with different levels of financial strength and market liquidity.

Benefits & Risks

The Risks for Existing GEM Issuers

The same reform could create pressure for weaker companies.

If GEM is absorbed into the Main Board framework, HKEX may use the transition to strengthen continuing-listing requirements, improve disclosure standards or take a more aggressive approach toward long-suspended or inactive companies. That could increase compliance costs for some issuers.

HKEX’s June 2026 report showed that 12 GEM companies had been suspended for three months or more as of June 30, while five GEM companies had been delisted during the year. The exchange’s rules allow it to cancel the listing of companies that remain suspended for specified periods, subject to the applicable procedures.

This means a merger could lead to greater separation between winners and losers. Companies with good businesses, clean compliance records and sufficient liquidity may benefit from a stronger market structure. Companies with persistent losses, weak disclosure or little public trading interest could face greater scrutiny.

The likely result would not be a universal rise in GEM share prices. Instead, the market could become more selective.

The Potential Benefits for GEM Companies

For stronger GEM companies, integration could improve visibility and investor confidence.

Many institutional investors and professional funds focus primarily on Main Board companies. If GEM companies were incorporated into the wider Main Board structure, some of them could benefit from a larger investor base, broader research coverage and a more familiar market identity.

A stronger market profile could also help companies raise money. Public companies often rely on their share price and trading liquidity when conducting placements, rights issues, acquisitions or employee share schemes. A more active market can make those transactions easier to complete.

The merger could also reduce the psychological discount associated with being a GEM-listed company. Some investors view GEM as a market dominated by very small companies, thin trading volumes and higher governance risks. Removing the separate GEM label might help high-quality companies avoid being treated as a single group with weaker issuers.

However, a change of board would not automatically improve a company’s earnings, cash flow or business prospects. A company with weak fundamentals would remain weak after a change in listing classification. A stock may receive short-term speculative interest, but a lasting revaluation would require stronger financial performance and better investor demand.

What Could Happen to Investors?

In the short term, the proposal itself could create volatility in some GEM shares. Investors may speculate that companies could benefit from a “Main Board premium,” particularly if they believe the merger could lead to higher liquidity or inclusion in more investment products.

That expectation could be dangerous if it is not supported by the final rules.

Important details remain unknown, including whether stock codes would change, how board lots would be treated, whether index providers would reclassify the securities and whether any companies would become eligible for short selling or Stock Connect investment. These matters would depend on the final consultation conclusions and technical arrangements.

Investors should also remember that the Main Board contains companies with very different sizes, industries and levels of liquidity. Simply moving a stock under the Main Board umbrella would not guarantee that funds would buy it.

The most important factors would still be revenue growth, operating cash flow, debt levels, shareholder dilution, corporate governance and the company’s ability to attract sustained trading interest.

Could the Main Board Brand Be Diluted?

A possible concern is that placing hundreds of smaller companies within the Main Board structure could weaken the Main Board’s reputation.

The Main Board is generally regarded as Hong Kong’s primary market for established companies. If the new structure were designed only to increase the number of Main Board listings without preserving meaningful quality distinctions, investors could find it more difficult to understand what the Main Board represents.

For that reason, Hong Kong may eventually adopt a tiered model. A new Chapter 18D could operate within the Main Board but maintain separate eligibility, disclosure and continued-listing requirements for smaller growth companies.

Such a structure would allow HKEX to simplify its market architecture without pretending that every listed company has the same level of maturity or investment risk.

Hong Kong’s Broader Listing Challenge

The proposed merger is part of a wider question about Hong Kong’s competitiveness as a listing venue.

HKEX’s 2026 competitiveness review said its reform proposals were intended to create a more inclusive and dynamic market environment while expanding investment opportunities for investors and meeting the needs of issuers. The review also compared Hong Kong’s listing framework with international standards.

This suggests that the GEM debate is not simply about one underperforming board. It is also about whether Hong Kong can attract more companies from emerging industries, provide them with an efficient path to public markets and maintain investor confidence after listing.

A larger number of listings is not enough. Hong Kong also needs companies that can raise capital after their IPO, maintain reasonable liquidity and create long-term value for shareholders.

Similar Examples

Shenzhen, Japan, and United States

Shenzhen Offers the Closest Example

The closest comparison is China’s merger of the Shenzhen Stock Exchange Main Board and SME Board.

On February 5, 2021, the China Securities Regulatory Commission approved the merger. The regulator said the two boards had developed overlapping functions and that the Main Board’s structure had become relatively rigid. The objective was to create a clearer division between the Main Board and the ChiNext board while improving the exchange’s ability to serve companies at different stages of development.

The merger was officially implemented on April 6, 2021. Shenzhen described the transition using the principle of “two unifications and four unchanged.” Business rules and supervisory operations were unified, while issuance and listing conditions, investor eligibility requirements, trading mechanisms, stock codes and stock abbreviations remained unchanged.

This is particularly relevant to Hong Kong because it shows that a board merger does not necessarily require an immediate economic transformation for every listed company. The exchange can alter the market structure while protecting existing trading arrangements and investor rights.

The Shenzhen example also shows that merging boards is mainly a market-design reform. It can remove overlapping labels, but it cannot guarantee that every company will receive a higher valuation.

Japan Restructured Its Market Into Three Segments

Japan provides another useful example, although its reform was broader than a simple merger.

On April 4, 2022, the Tokyo Stock Exchange reorganized its former First Section, Second Section, Mothers and JASDAQ markets into three segments: Prime, Standard and Growth. The objective was to make each market’s role clearer and encourage listed companies to pursue sustainable growth and improve medium- and long-term corporate value.

The Prime Market was designed for companies with higher liquidity and governance standards, while the Growth Market focused on companies with high growth potential but greater investment risk. The transition also included measures for companies that did not immediately satisfy all of the new continued-listing criteria.

Japan’s experience suggests that Hong Kong may need more than a simple consolidation. If GEM is absorbed into the Main Board, the exchange may still need clear internal categories so investors can distinguish between established companies and higher-risk growth businesses.

Nasdaq offers a different model. Rather than eliminating its smaller-company market, Nasdaq reorganized its tiers.

In 2006, Nasdaq created the Global Select Market, renamed the National Market as the Global Market and retained the Capital Market, which had previously been known as the SmallCap Market. The three tiers were designed for companies with different levels of size, liquidity and listing standards.

This example shows that a stock exchange does not always need to remove a second board completely. It can also use clearer names and more distinct standards to improve investor understanding.

For Hong Kong, Nasdaq’s experience supports the idea of preserving a growth-company pathway while making its purpose and quality requirements clearer.

Nasdaq Used Rebranding and Tiering

The Most Likely Outcome for Hong Kong

My base-case expectation is that Hong Kong would pursue a hybrid reform rather than a simple, one-step merger.

GEM could eventually lose its identity as a completely separate board, while a new Main Board chapter would continue to provide a tailored route for smaller and high-growth companies. Existing GEM companies could be moved into the new framework under transition rules, but the strongest companies would be more likely to receive investor attention than weaker ones.

In the short term, the proposal could create speculative interest in selected GEM stocks. In the medium term, the impact would depend on whether the reform attracts more high-quality IPOs and improves post-listing liquidity. In the long term, the merger would succeed only if it encourages companies to grow, disclose better information and create value for shareholders.

The central lesson from Shenzhen, Japan and Nasdaq is that a market merger can improve organization and reduce confusion, but it cannot replace sound companies, strong governance and active investors.

For Hong Kong investors, the most important event will not be the announcement of a new chapter number. It will be the final consultation document. Investors should pay close attention to eligibility requirements, treatment of existing GEM companies, continued-listing standards, index classification and any changes to trading or market-access arrangements. A merger could give Hong Kong’s small-cap market a fresh start. But whether it becomes a genuine revival or merely a change of label will depend on the quality of the rules that follow.

©2026 Ryan Financial Daily