- The proposed new electronic platform would shorten the gap between an IPO being priced and its trading debut from five business days to just one day
- The proposal by the stock exchange operator would improve market efficiency and reduce risks, according to analysts.
Hong Kong Exchanges and Clearing (HKEX) is proposing a revamp that would drastically speed up the process of initial public offerings, helping the city maintain its edge as a hub for stock market listings.
The modernisation would involve replacing time-consuming paper subscriptions with an electronic system that would cut the so-called IPO settlement process by 80 per cent and bring the city’s stock market in line with its counterparts in the US and Europe.
The proposal would digitalise the IPO process with a new platform called Fast Interface for New Issuance (FINI), according to a statement released by HKEX, the bourse operator, on Monday. If it gets the go-ahead as scheduled in the second quarter of 2022, it will allow companies, regulators, bankers and brokers to interact when handling the entire settlement process.
It would shorten the settlement process – the gap between the pricing of an IPO and its trading date – from five business days to just one day.
to boost its IPO credentials, after it
earlier this month. The bourse, which has been the largest IPO market worldwide seven times in the past 11 years, introduced sweeping
in 2018, which have attracted more tech giants with multiple classes of voting rights, as well as pre-profit biotech firms.
However, the logistics of the IPO process has not changed in more than two decades.
“For the last decade, Hong Kong has been the IPO capital of the world. It is vitally important that we continue to protect our global leadership position in the next decade and beyond by innovating and advancing our market infrastructure,” said Charles Li Xiaojia, the outgoing chief executive of HKEX, who will step down next month.
An increasing number of US-listed technology firms are likely to follow in the footsteps of Alibaba Group Holding to launch a secondary listing in Hong Kong, making it even more important for HKEX to shorten the IPO settlement period, Li said during a teleconference on Monday. Alibaba owns the Post.
The advantage of the new platform is that retail investors can pay after the allotment, instead of having to pay in full in advance for the shares they want. Their brokers would only need to pay a 10 percent deposit at the time of subscription under the proposal.
The manual processing of retail investors’ subscriptions is one reason a typical flotation takes five days to settle in Hong Kong, a system known as “T+5”, as shares in the city can only start trading five days after the subscription period ends.
The proposed reform would allow Hong Kong to catch up with many markets in Britain, the US, and continental Europe that enable trading within one day of the close of subscription, a process known as “T+1”.
“The new move is welcomed by listed companies as it will help speed up the IPO process,” said Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies.
“It may hurt many of the stockbrokers as it will cut down the interest income from IPO loans after shortening the settlement time,” he said.