• The Exchange publishes proposals to review the regulatory framework relating to IPO price discovery and open market requirements
• Proposals aim to enhance current requirements and mechanisms to boost the competitiveness of the Hong Kong listed securities market
• Consultation period lasts for three months until 19 March 2025

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), published a consultation paper seeking market feedback on proposals to optimise IPO price discovery and open market requirements (the Consultation Paper). The consultation window is open for a three-month period, concluding on Wednesday, 19 March 2025.

The Exchange’s proposals represent a holistic reform of its regulatory framework relating to the IPO price discovery process and open market requirements, ensuring its listing mechanism remains attractive and competitive for existing and prospective issuers. In particular, the Exchange proposes to:

1. Optimise the price discovery process for IPOs to increase the participation of “price setting” investors, thereby reducing the likelihood of the final offer price being set at a large disparity to the actual trading price when dealings in those shares commence.
2. Review open market requirements, ensuring issuers will have sufficient shares in public hands that are available for trading at listing, whilst relaxing certain percentage thresholds which would imply a bar that may be too high in absolute dollar value.

HKEX Head of Listing, Katherine Ng, said: “At HKEX, we are committed to maintaining a robust and competitive new listing and ongoing listing framework, underpinning Hong Kong as a global leading capital raising centre. We are delighted to be proposing new requirements to enhance the IPO pricing and offering mechanism, supporting high quality companies from around the world to list and thrive in Hong Kong’s vibrant capital market. As part of our ongoing efforts to ensure that our listing regime is fit for purpose and meets the needs of a constantly evolving market, we are also proposing changes to the open market requirements that will solidify our reputation as an open, transparent and attractive market to issuers and investors around the world.”

Key Proposals

	Subject	Key Proposal
Open Market Requirements
1.	Calculation of public float1	We propose to clarify the basis for calculating public float.
2.	Initial public float	We propose a tiered structure for our minimum public float requirements at listing.
3.	Ongoing public float	We seek feedback on the appropriate ongoing public float requirements and seek views on whether issuers should be allowed additional flexibility to maintain a lower public float level after listing.
		We propose to enhance annual public float disclosure requirements for increased transparency.
		We seek feedback on the concept of an over-the-counter (OTC) market in Hong Kong.
4.	Free float2	We propose to require that a certain portion of shares in public hands should be freely traded immediately upon listing to help provide liquidity.
5.	A+H issuers3	We propose to reduce the minimum threshold of the amount of H shares that A+H issuers must list in Hong Kong to either represent at least 10% of the total number of issued shares in the same class (as compared to the current requirement of 15%), or have an expected market value of at least HK$3 billion at listing, which must also be held by the public. We believe the proposed threshold could increase flexibility for A+H issuers, whilst ensuring the amount of shares listed in Hong Kong is large enough to attract a “critical mass” of investor interest and form a sufficient public float.
IPO Pricing and Offering Mechanism
6.	Regulatory lock-up on cornerstone investment4	We seek market feedback on retaining the current requirement where IPO securities placed to cornerstone investors will be locked-up for six months after listing, or allowing a “staggered release” approach where 50% of the IPO securities placed to cornerstone investors will be released three months after listing and the remaining IPO securities will be released six months after listing.
7.	Placing tranche5	We propose to require that every IPO is priced by reference to a robust bookbuilding mechanism6 by requiring that an issuer allocate at least half of its offer shares to the bookbuilding placing tranche7.
8.	Public subscription tranche8	We propose to provide issuers the flexibility to either initially allocate 5% of its offer shares to the public subscription tranche, subject to a clawback mechanism of up to 20% (as compared to the current requirement of a clawback mechanism of up to 50%), or initially allocate a minimum of 10% of its offer shares to the public subscription tranche, with no clawback mechanism. We believe our proposal preserves the right of public investors to an allocation of IPO shares, whilst minimising the risk of mispricing by limiting the extent of these allocations9. The proposal will also bring our requirements more closely in line with those of other international stock exchanges.
Pricing Flexibility Mechanism10
9.	Pricing flexibility mechanism	We propose to enhance our competitiveness by allowing issuers to set the final IPO price up to 10% above the indicative offer price range without delaying their IPO timetables (as compared to our current mechanism which only allows a downward adjustment of 10% below the indicative price range).

In developing its proposals for consultation, the Exchange engaged a broad range of stakeholders, including representatives from investment banks, public institutional investors, private equity firms, retail brokers, and both existing and prospective listed issuers.

The Exchange is seeking market feedback on its proposals and the proposed Listing Rules to implement them. The public comment period ends on Wednesday, 19 March 2025. Interested parties are encouraged to respond to the Consultation Paper by completing and submitting a questionnaire on the HKEX website.

Notes:

1. Securities of an issuer that are held in the hands of the public (see Main Board Listing Rule 8.24 and Notes 2 and 3 to GEM Listing Rule 11.23 for the meaning of “the public”).
2. Securities of an issuer that are not subject to any disposal restrictions (“lock-up”) upon listing.
3. “A+H issuers” refers to issuers incorporated in Mainland China with domestic shares listed on a stock exchange in Mainland China (i.e. A shares) and shares listed on the Exchange (i.e. H shares).
4. Investment in an IPO by investors (“cornerstone investors”) to whom offer shares are preferentially placed with a guaranteed allocation irrespective of the final offer price.
5. Offer of securities in an IPO for subscription by persons (“placees”) selected or approved by the issuer or intermediary.
6. A mechanism through which investors place orders (including expressions of interests) as to the number of shares they wish to subscribe for and the price at which they are willing to pay for them, with no commitment to do so until the final offer price is determined.
7. The part of the placing tranche not taken up by cornerstone investors in an IPO.
8. Offer of securities in an IPO for subscription by the public.
9. The clawback mechanism reduces the proportion of shares that can be allocated to investors in the bookbuilding placing tranche (who are generally considered as key “price setters” of the final offer price). In this circumstance, the issuer may be able to set a high final IPO offer price that would not have been acceptable to sufficient investors in the bookbuilding tranche at its original size. This may increase the risk of the IPO being mispriced.
10. A mechanism that allows issuers to adjust the offer price by a prescribed percentage from the indicative offer price or offer price range after the close of the public subscription tranche in an IPO. Existing requirements only permit downward adjustment to offer price.

Source: HKEX