HONG KONG, Sept 17 (Reuters) - Hong Kong on Friday proposed changing its rules to allow SPACs to list, but with tighter restrictions than elsewhere as it becomes the latest to tap the desire for such investment vehicles even as the frenzy that began last year wanes. The Stock Exchange of Hong Kong has been working on proposals for SPACs since early this year, but one challenge, market participants say, has been finding a way of allowing such listings without undermining efforts by the exchange and regulator to combat illegal practices linked to the formation and trading of shell companies with which Hong Kong grappled in the last decade. On the other hand, there are also concerns that tough restrictions would mean the exchange would not be an attractive place to list a SPAC. The proposal is open for public consultation, with the deadline for responding set for Oct. 31. SPACs, or special purpose acquisition companies, are shell corporations that list on stock exchanges and then merge with an existing company to take it public, typically offering strong valuations and shorter listing time frames than initial public offerings. Under Hong Kong"s proposals, only professional investors would be able to invest in a SPAC until it has merged with a target company, and the firms sponsoring a SPAC must include at least one institution licenced by the local securities regulator. The company that is acquired by a SPAC must also meet the same requirements as would a company listing in Hong Kong via an IPO, including being approved by the bourse"s listing committee. "We"re confident that this will not go against what we"re doing in terms of tightening (rules for) shells, and that enough shareholder protections and other safeguards have been introduced," Bonnie Chan, head of listing at Hong Kong Exchanges and Clearing (0388.HK), the stock exchange"s parent, told the media. She added that a lot of companies had expressed interest in exploring a SPAC listing in Hong Kong, and that according to HKEX"s count 25 U.S.-listed SPACs are headquartered in greater China, and approximately 12 companies in Asia have been acquired by a SPAC in recent years. Hong Kong is a major global IPO venue with companies having raised more than $35 billion there this year, according to Refinitiv data. SPACs surged in popularity in the United States late last year and early this year, and companies globally have raised $131 billion so far in 2021, according to Dealogic data, a lucrative development for U.S. bourses, where the vast majority of such listings have taken place. But the pace of capital raising has slowed in the second half of this year as investors have been spooked by many SPACs" poor financial performance and a regulatory crackdown led by the U.S. Securities and Exchange Commission over their disclosures. read more Hong Kong"s rival Singapore Exchange unveiled its final rules for SPACs to list earlier this month, after easing some measures viewed as too strict by participants following market consultations. Britain eased its rules for SPACs in July. read more ($1 = 7.7828 Hong Kong dollars) Reporting by Alun John; editing by Jason Neely, Ana Nicolaci da Costa and Steve Orlofsky