- The Australian Securities Exchange has knocked back 18.8% of applications to list on the exchange since 2016, with 80 individual applications rejected.
- The stock exchange was forced to introduce new regulations amid concerns it was admitting too many risky early-stage startups.
- The revelation comes as the ASX attempts to attract foreign applicants, especially in the tech sector.
Australia has long been on a mission to attract more foreign companies to list on its stock exchange, especially from the tech sector.
But that doesn’t mean the floodgates are wide open to any startup that needs a capital injection.
In fact, in 2016 the ASX introduced a new vetting regime in response to concerns that too many risky early-stage tech companies were being allowed to prematurely list on the exchange. In the two years to April 2016, 45 per cent of the 105 listings on the ASX were by companies with less than $1 million in revenue.
Now, ASX CEO Dominic Stevens has revealed that the vetting regime is apparently having an impact – with more than 80 listing applications rejected by the ASX in the last three years.
“Since introducing a new pre-vetting process in early 2016, ASX has rejected more than 80 listing applications from companies that failed to meet the business, governance or regulatory standards we expect of an ASX-listed company,” Stevens said in a speech to the Stockbrokers and Financial Advisers Association of Australia conference on Wednesday.
“While we don’t pick winners, we do set the admission rules for companies to help keep the standards of our market high. That’s the quality control we apply.”
An ASX spokesperson told Business Insider Australia that the total number of company listings since the new rules were introduced is 428, indicating a rejection rate of 18.8%. That figure only includes new companies to the ASX, not listed investment vehicles like exchange-traded funds.
Speaking to Business Insider Australia, The Motley Fool’s chief investment officer Scott Phillips wondered whether this vetting role might be more appropriately taken on by ASIC, the government regulator, rather than the ASX — which is actually owned by ASX Limited, a public company listed on the exchange itself.
But he also said the exchange definitely needs barriers to entry, regardless of which organisation is regulating it.
“With online broking so cheap and available, it could turn into a casino if left unregulated,” Phillips said. “If just anyone can stump up listing fees and take investors’ money, it’d be a pretty poor reflection on the bourse, and leave investors, particularly new or unsophisticated investors, largely unprotected.”
While regulating entry to the exchange is sensible, companies the ASX has rejected and other growth-seeking companies are likely not celebrating the crackdown.
In 2013, Freelancer CEO Matt Barrie told Business Insider Australia it was already too difficult for tech companies to list on the ASX, describing it as the “valley of death” for mid-tier tech firms seeking growth. And that was three years before the ASX introduced the new rules.
But the ASX boss is unlikely to be deterred, telling stockbrokers and bankers they need to be careful about the companies they try to take public.
“There is a key role to play for those here today too, ensuring the quality of the companies you promote and bring to market, and the advice you give your clients and investors,” Stevens said.
“A market of high integrity is in all our interests.”
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