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Original title: Hong Kong Stock Exchange IPO Cycle Will Shrink to T + 1 Li Xiaojia: Retail Investors Only Need to Prepare a 10% Deposit
The Hong Kong Stock Exchange announced on November 16 that it will solicit market views on proposals to complete modernization and digitization of Hong Kong’s initial public offering (IPO) settlement procedures. This means that the Hong Kong IPO pricing cycle will be shortened from the original five business days (commonly known as T + 5) to the shortest business day (T + 1).
The Hong Kong Stock Exchange plans to launch a new FINI (Fast Interface for New Issuance) online service platform. This is a simple and easy to use single platform for brokers, stock registrars, sponsors, attorneys, subscribers and distributors to manage the launch of stock offers, subscriptions, pricing, All necessary steps such as assignment, payment, l ” regulatory approval and the inclusion of actions, sharing information and coordinating related work processes. More than 100 IPO related jobs will be simplified, greatly improving efficiency.
“This is a long awaited market reform. This is a comprehensive reform of the new securities listing process and has completely simplified the issuance process. The current” T + 5 “cycle takes a relatively long time to all market participants. Unwanted risks, things that haven’t changed in the last 20 years must have changed. With the issuance of large-scale IPOs and the return of China Concept Stocks, some shares have been traded in another market and the issue of Hong Kong’s long emissions cycle needs to be resolved more urgently. ” Li Xiaojia, chief executive of the Hong Kong Stock Exchange, said in a conference call that day.
It is understood that the Hong Kong Stock Exchange FINI platform project has been running for 18 months and the planning process has taken several years. Li Xiaojia said: “The reform of the IPO has touched almost all market participants and is difficult to adjust. It is necessary to ensure that the interests of all parties are not affected. At the same time, regulators need to enough time to ensure that the risks are manageable. Compared to a few years ago, the new There are already many technologies, new products and various solutions and the technology is more mature. “
At the same time, the Exchange Listing Division and its wholly-owned subsidiary, Hong Kong Securities Clearing Company Limited and the Securities and Futures Commission, will use FINI to monitor the settlement process of each new security and directly confirm and approve each required item. This will greatly improve the efficiency of the IPO process.
Launched in the second quarter of 2022 at the earliest
The Hong Kong Stock Exchange has stated that FINI’s launch date will depend on market support and preparations and is expected to launch no earlier than the second quarter of 2022. This public consultation will end on January 15, 2021.
It is understood that if the market supports the proposal, the Hong Kong Stock Exchange will make full use of FINI to manage all future settlement procedures for new shares and replace the current “T + 5” procedure. The Hong Kong Stock Exchange will provide the market with guidelines and user access courses in due course so that market participants can prepare for the smooth transition to FINI.
The long liquidation cycle of the IPO has always been a major criticism of the Hong Kong stock market. After the new shares are set up, it takes an average of 5 business days before and after the allocation and settlement of the new shares until the shares officially start trading on the stock exchange. In other words, issuers and investors have to wait on average “T + 5” days before they can trade the shares before they “beat the gong” and the shares can be traded on the secondary market.
“Such lengthy settlement procedures also involve market risks for investors and issuers, which can affect the price of the new shares. Unlike other major fundraising centers, the new shares can be traded on ‘T + 1’ and Hong Kong does not appear to be competitive. ” The Hong Kong Stock Exchange stated in the consultation paper.
According to the consultation paper, due to the complicated procedures and lack of common standards, data models, infrastructure and coordination among many market participants, the clearance time for Hong Kong’s public offerings averages 9 days. The FINI platform is expected to save 70% to 80% of the time for Hong Kong public offering settlement procedures. The Hong Kong Stock Exchange proposes to set the schedule for closing the listing subscription and trading at 45 hours as the standard for the Hong Kong public offering, which means that the newly listed shares can be traded on the exchange on the business day. next after the price.
Li Xiaojia pointed out that the current “T + 1” of the major European and American exchanges only provides for conditional trading of single shares. After the launch of the FINI platform, the Hong Kong Stock Exchange will be the first of the world’s major exchanges to list new shares on the “T + Can be fully delivered in case of 1”, which is the most advanced in the world.
“At present, the most time-consuming process in the listing process is that banks or securities firms have to confirm that funds for clients to subscribe for new shares are received. If funds are insufficient, the relevant subscription application will be eliminated, then the raffle and share allotment will be processed and Excluding repeat subscription applications. The newly launched platform requires investors to provide identification documents to better identify repeat subscription applications and greatly shorten the entire process. ” A Hong Kong broker told the 21st Century Business Herald reporter.
The broker only needs a 10% deposit
The long cycle has also led to the freezing of large amounts of funds in large IPOs, resulting in tight liquidity in the market for Hong Kong dollars.
Take for example Ant Group’s previous public sale in Hong Kong, which received 1.47 million subscriptions, with a total frozen capital of 1.3 trillion Hong Kong dollars, making it the largest “king of frozen capital” in the history of the Hong Kong IPO. Due to the continued inflows of capital into the market, HKMA entered the market frequently and sold Hong Kong dollars in October to inject cash.
Under the existing Hong Kong equity mechanism, retail investors have to prepare funds or borrow margins in advance during the IPO period (i.e., the meaning of margin, investors who have opened “margin accounts” can use financial institutions to trade stocks The amount of funding provided is used for leveraged investments) for subscription. This means that once a company temporarily cancels its listing plan, retail investors with loans will suffer some loss of interest – the longer the settlement cycle, the greater the loss of interest.
Lukas Petrikas, director of the Hong Kong Stock Exchange’s Innovation and Data Laboratory, stressed over a conference call that under the current new share issue mechanism, intermediaries participating in the public offering must prepay and transfer the subscription amount. to the issuer on behalf of the investors. The corresponding amount will be refunded after the assignment and the final price. This means that there could be a huge cash flow between banks during the IPO period, leading to short-term liquidity pressures in the Hong Kong dollar interbank market and increasing funding costs.
Li Xiaojia also frankly stated that under the new mechanism for issuing existing shares, IPOs often freeze billions or even hundreds of billions of Hong Kong dollars in funds, which “brings unnecessary shocks and fluctuations to monetary policy.”
After the launch of the FINI platform, there will be major changes to the Hong Kong public offering prepayment mechanism: each broker will verify the funds to subscribe for new shares through a designated bank. After the outcome of the new stock lottery, the issuer will collect the actual number of shares to be assigned. This approach is expected to alleviate the pressure on Hong Kong dollar capital flows and the interbank interest rate market caused by overwriting of new shares.
As the settlement cycle of the new shares has shrunk significantly, brokers
(Author: Zhu Lina)
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