Hong Kong Stock Exchange optimizes IPO pricing mechanism: public subscriptions are adjusted to 35%, and cornerstone investors are subject to a 6-month lock-up period.

On August 1, HKEX (00388) announced that its wholly-owned subsidiary, The Stock Exchange of Hong Kong Limited (SEHK), will optimize the IPO market pricing and public market regulations, with the new rules taking effect on August 4, 2025. Among the changes is an increase in the maximum retail clawback ratio to 35% (originally proposed at 20%), while retaining a 6-month lock-up period for cornerstone investors without relaxation. Additionally, a new requirement for initial free float is introduced to ensure there are enough tradable shares at the time of listing. SEHK is also consulting on further regulations regarding the continuous public shareholding requirement to enhance market flexibility and strengthen shareholder rights protection. Summary of the proposed reforms for the IPO pricing and public market: SEHK received 1,253 non-duplicative responses from various stakeholders regarding the consultation paper. After considering these responses, SEHK has made some revisions and clarifications, and will adopt most of the proposals in the consultation paper. Veronica Wai-Cheong, Head of HKEX's Listing Department, said, "As one of the world's most active markets for IPOs, Hong Kong has attracted issuers from various industries to list here over the past two decades. The size of these IPOs has been increasing, attracting a diverse range of international investors to subscribe. In order to maintain international competitiveness and continue to attract the next generation of excellent companies to list in Hong Kong, we must keep pace with the times, continuously optimize the listing system, and ensure that our system aligns with international market standards." Veronica Wai-Cheong continued, "Through these reforms, HKEX hopes to enhance the robustness of the IPO pricing and allocation mechanisms, and balance the needs of various types of local and international investors to participate in IPO subscriptions. We have revised the initial public float requirement to provide issuers with greater flexibility and certainty, and introduced a new requirement for initial free float to ensure there are enough tradable shares at the time of listing. We sincerely thank all market participants for providing valuable feedback during the consultation process, helping us adjust and formulate the final proposals to jointly promote the sustainable development of Hong Kong's new stock market." The key changes to the listing rules include: IPO pricing and allocation mechanism: 1. Minimum allocation for the book building portion: Issuers are required to allocate at least 40% of the newly proposed shares for the IPO to the book building portion. (The minimum allocation ratio has been lowered from the original proposal of 50% to 40%.) 2. Allocation to the public offering portion: New listing applicants are allowed to choose between Mechanism A or Mechanism B as the allocation mechanism for the IPO: Mechanism A: Replaces the existing allocation and clawback mechanism with a specified allocation ratio for the public offering portion. The maximum clawback percentage for Mechanism A has been raised from the original proposal of 20% to 35%. Mechanism B: Introduces a new mechanism option that requires issuers to pre-select a ratio for the public offering portion, ranging from 10% (up to 60%) of the shares sold, with no clawback mechanism. (The maximum percentage allocated to the public offering portion under Mechanism B has been raised from the original proposal of 50% to 60%.) Unadopted proposals: SEHK has decided to retain the existing 6-month lock-up period for cornerstone investors to maintain investors' commitment to the issuance. Additionally, the proposed flexibility mechanism for price adjustment will not be implemented after considering the practical difficulties mentioned by respondents during the consultation process. Public market regulations: 3. Initial public float and free float: Issuers are required to meet the following minimum public float and free float requirements at the time of listing: SEHK will continue to have discretionary power to waive the above requirements based on individual facts and circumstances. The new rules will take effect on August 4, 2025, and will apply to all issuers and new listing applicants who publish their listing documents on or after that date. Transitional revisions have been made to the existing continuous public shareholding requirements to ensure compatibility with the new initial public float requirements. Once the further market consultation on continuous public shareholding is completed and implemented, the new rules will replace the above transitional arrangements. Further consultation on continuous public shareholding requirements: In response to market opinions on the establishment of appropriate continuous public shareholding requirements, SEHK is also conducting further consultations on the detailed proposals for these requirements. Veronica Wai-Cheong said, "We are pleased to conduct further market consultations on the continuous public shareholding requirements. We are committed to continuously optimizing the Hong Kong Listing Rules to meet the needs of issuers from various industries and scales globally. These proposals provide issuers with greater flexibility for better capital management, while also introducing measures to prevent long-term breaches and enhance the protection of shareholders' interests. We sincerely thank all sectors of the market for their valuable feedback to help us adjust and formulate the final proposals." A comparison of the current and proposed continuous public shareholding requirements is as follows: SEHK is soliciting market opinions on the proposed continuous public shareholding requirements and the corresponding revisions to the Listing Rules needed to implement these proposals. The public consultation period will end on October 1, 2025.