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With the proposal to change its rules to allow SPACs to list, Hong Kong would become the latest jurisdiction to tap the demand for such investment vehicles even as the frenzy that began last year has waned. However, the proposed changes would impose stricter restrictions than those in other jurisdictions.

SPAC proposals have been in the works at the Hong Kong Stock Exchange since the beginning of this year, but market participants say one of the biggest challenges has been finding a way to allow such listings without undermining efforts by the exchange and regulator to combat illegal practises linked to the formation and trading of shell companies, with which Hong Kong has been grappling for the better part of a decade.

On the other side, there are worries that the exchange’s stringent listing requirements will make it less appealing as a listing venue for SPACs.

The plan is now available for public comment, with a response date of October 31 established as a deadline for replying.

SPACs, or special purpose acquisition companies, are shell corporations that list on stock exchanges and then merge with an existing company to bring it public. They typically offer higher valuations and shorter listing time frames than initial public offerings, and they are more popular among investors.

Hong Kong’s plans stipulate that only professional investors would be permitted to participate in SPACs until they were merged with their target companies, and that the businesses sponsoring a SPAC must consist of a minimum of one financial institution licenced by the local securities regulator.

An acquired business must also satisfy all of the criteria for listing in Hong Kong through an initial public offering (IPO), including approval by the bourse’s listing committee, before the acquisition can be completed.

To the media, Hong Kong Exchanges and Clearing (0388.HK), the stock exchange’s parent, stated that “we are confident that this will not conflict with what we are doing in terms of tightening (rules for) shells, and that sufficient shareholder protections and other safeguards have been introduced.” Bonnie Chan is the head of listing at Hong Kong Exchanges and Clearing (0388.HK), the stock exchange’s parent.

Her remarks were followed by the statement that a large number of companies had expressed interest in exploring a SPAC listing in Hong Kong. She also stated that, according to HKEX’s count, 25 SPACs listed on the New York Stock Exchange are headquartered in greater China, and that approximately 12 companies in Asia had been acquired by a SPAC in recent years.

Refinitiv data shows that Hong Kong is a significant worldwide IPO destination, with businesses raising more than $35 billion there this year, according to the data provider.

In the United States, SPACs gained popularity late last year and early this year, and companies around the world have raised $131 billion so far in 2021, according to Dealogic data. This is a lucrative development for U.S. bourses, which have handled the vast majority of SPAC listings to date, as well as for investors.