Source: Securities Times
Author: Roman

The Hong Kong Stock Exchange announced on September 27 that FINI, a new digital initial public offering settlement platform, will be officially launched on November 22, marking another major milestone in the development of Hong Kong's capital market.

FINI is an important initiative of the Hong Kong Stock Exchange to drastically shorten the time from pricing of IPOs to the start of stock trading from T+5 to T+2, thereby improving efficiency and promoting the long-term development of Hong Kong as a global capital raising center.

EU Guansheng, CEO of the Hong Kong Stock Exchange, said, “FINI is an important development in Hong Kong's capital market. It facilitates market participants and issuers, enhances market efficiency, and helps the market effectively manage risks and costs. The new platform demonstrates HKEx's firm commitment to continuously enhance the competitiveness and appeal of the market, modernize the Hong Kong market infrastructure, and promote market cooperation. HKEx sincerely thanks all market participants and stakeholders who have supported this reform journey to further connect capital and opportunities.”

The settlement cycle for Hong Kong stock IPOs will be shortened to T+2

On September 27, the Hong Kong Stock Exchange announced that the new platform FINI will be launched on November 22 to fully simplify and digitize Hong Kong's initial public offering procedures, shortening the current “T+5” settlement cycle to “T+2”. Simply understood, for example, issuer A completed IPO pricing on November 22, and issuer A's official listing time is November 24.

In response, EU Guansheng, CEO of the Hong Kong Stock Exchange Executive Group, said, “In the future, FINI can shorten the cycle between IPO pricing and the start of trading. In addition to improving market efficiency, it can also strengthen Hong Kong's position as a global fund-raising market.”

The shortening of the IPO settlement cycle for Hong Kong stocks has been recognized by the Hong Kong industry. Some industry insiders say that shortening the public offering settlement procedure and cycle will reduce the influence of external factors on the IPO price discovery process, enable public offering issuers and investors to make judgments based on market conditions, and also make the value of public offerings more reflective of current market conditions.

By shortening the IPO cycle, the Hong Kong Stock Exchange believes that it will greatly reduce the freezing time of investors' funds, and at the same time improve the efficiency of the use of funds.

The Securities Times reporter learned that during the Hong Kong IPO period, investors need to make an advance payment to freeze funds. If they encounter popular stocks with large oversubscription multiples, then the total amount of frozen funds may exceed trillion dollars, which may even affect the liquidity of the Hong Kong stock market.

Typical such as$KUAISHOU-W (01024.HK)$During Kuaishou's Hong Kong stock listing and IPO, it received more than 1.4 million retail subscriptions and frozen more than HK$1.28 trillion in capital, setting a new Hong Kong record. However, investors mostly used margin when they subscribed to Kuaishou. Banks and brokerage firms lent at least HK$500 billion in margins to investors. As a result, liquidity in the Hong Kong dollar market was tightened, and Hibor (Hong Kong Interbank Offered Interest Rate) rose across the board.

Furthermore, shortening the IPO period can reduce the risks faced by investors, and there is no need to worry about fluctuations in listing conditions during the capital freeze period. If the risk taken by investors is reduced, it is theoretically possible to accept higher pricing; in other words, the amount of capital raised by IPOs is expected to increase as a result.

However, it is important to note that shortening the IPO period may affect the margin interest income of Hong Kong brokerage firms. Because Hong Kong IPO is launched, investors usually finance through brokerage firms. Usually 10% of the principal amount can finance 90% from the brokerage firm and pay interest and other expenses, and the brokerage firm will also earn corresponding interest.

However, a relevant person in charge of the Hong Kong Stock Exchange told the Securities Times reporter that shortening the prospecting cycle does affect brokers' revenue, but in reality it has also improved the efficiency of brokers' use of capital. Furthermore, it makes the Hong Kong stock IPO market more attractive and attracts more companies to go public in Hong Kong, which is also a good thing for brokerage firms.

Why do they tend to adopt the T+2 schedule?

In fact, the previous FINI framework consultation document recommended shortening the IPO settlement cycle to T+1, but why did they finally adopt a T+2 strategy?

The Hong Kong Stock Exchange said that in the response proposal documents it received, most industry insiders believe that the T+1 public offering settlement cycle is certainly desirable, but it is too tight in terms of operation. Most market participants believe that the time for institutional transactions to split positions, pre-settlement, and underwriter review and settlement is insufficient, especially when a large number of overseas investors participate in public offerings.

For example, in terms of pricing, some public offerings, especially when subscriptions are insufficient or significantly oversubscribed, may not be priced until 10 a.m. on T-day, that is, the day after the public sale subscription deadline. Although it's generally possible to complete pricing before the time limit, you may not be able to do it every time you trade.

Furthermore, the distribution of shares in the international placement will be confirmed with investors after pricing, and the relevant procedures take time, sometimes exceeding the “T-Day” 2 p.m. deadline proposed in the consultation document. If the relevant procedures are to be completed before the deadline proposed in the consultation document, it may be necessary to close the subscription early, which will adversely affect subscription demand and the success of the stock offering, and also put too much pressure on the underwriting team.

In an interview with the Securities Times reporter earlier, Chen Yiting, head of listing at the Hong Kong Stock Exchange, said, “There is a lot of work to be done before IPO is listed, mainly on the regulatory side. Our listing department needs to review the stock subscription and distribution list with the Hong Kong Securities Regulatory Commission. This will take some time. From an operational level, due to the large number of market participants, in order to avoid settlement failures, etc., we have adopted a relatively conservative approach and adopted a T+2 settlement cycle to give the market a buffer period. When everyone adapts to this process and pace, the Hong Kong Stock Exchange will also move in the direction of T+1 in the future.”

editor/tolk