Market Existential Episode 39 | April 2025

Episode Description:

Julia Charlton discusses the Hong Kong Stock Exchange’s proposals to optimize IPO price discovery and open market requirements, aiming to enhance the competitiveness of Hong Kong’s securities market. The exchange’s proposed reforms focus on the IPO price discovery process and open market requirements, particularly the public float calculation and listing rules.

Current public float calculations include shares not publicly traded in Hong Kong, such as PRC issuers’ A-shares listed in the PRC, which the exchange argues do not contribute to an open market. The exchange proposes calculating public float by considering only the class of shares listed on the Hong Kong Exchange, aligning with practices in London, Australia, and Singapore. For PRC issuers, the exchange suggests modifying the public float calculation to ensure H-shares represent a meaningful percentage of all issued shares with similar rights.

The exchange proposes removing certain shares from the public float calculation, such as those with weighted voting rights, promoter shares, or held in trust for share schemes. Tiered initial public float thresholds based on market cap are suggested, potentially reducing public float requirements for large-cap companies and addressing regulatory disparities. The exchange suggests an initial free float requirement for at least 10% of listed shares to be freely tradable, proposing new rules for PRC issuers and specialist technology companies.

Proposed changes in the IPO offering mechanism include a staggered lockup period for cornerstone investors and ensuring a significant portion of IPO shares is allocated to the bookbuilding tranche to enhance price discovery. The exchange also explores adjustments to pricing flexibility during IPOs, allowing upward or downward adjustments to the final offer price within specific limits, while seeking feedback on maintaining or reducing the current offer price range limits.