Traditionally the world looked to the United States for
lessons on how to run a state-of-the-art stock market. But the
decline of small-business listings suggests that America may do
well to look for advice from some of its former students.
Ironically, it may be the most antiquated exchange that offers
the clearest guidance.
Of course, the United States is not the only global market
to see a drying up of small-cap public offerings. Even
exchanges that specialize in making life easy for such
businesses have been struggling. By the end of 2011, the number
of companies listed on Londons Alternative Investment
Market was at its lowest level in seven years.
There are tentative signs that this IPO disease has
been spreading to Europe too, says Colin Mason, a
business professor at the University of Strathclyde in Glasgow
and author of a report on the subject for the City of London.
Various mature markets look to be seeing this.
Yet this IPO atrophy has not occurred everywhere. Markets in
China, Australia and Poland continued to help the little guy
flourish. Still, it is Hong Kong that offers the best example
of how old-fashioned practices may end up promoting microcap
listings. Hong Kong has been among the most active exchanges
for small public offerings in recent years.
The reason for this success is likely to be complicated.
While giant institutional investors dominate stock trading in
the United States, retail investors play a bigger part on the
Hong Kong market, accounting for about 22 percent of trading by
value in the Asian market compared to less than 5 percent on
the New York Stock Exchange. These
individual and usually
amateur investors are typically more willing
to take a flier on riskier small companies.
Hong Kong may also get a tailwind for IPOs from the faster
economic growth in Asia and also from lower costs for listing.
This second factor is the preferred explanation for the
exchange itself. We adhere to a principles-based regime
rather than a prescriptive, or black-letter law
approach, which is in use in the United States, says
Lorraine Chan, a senior vice president for corporate
communications at Hong Kong Exchanges and Clearing Limited.
We believe our system can be applied with some
flexibility in practice, resulting in lower compliance costs
for issuers than that in the United States, which has the