HKEx Consults on Proposal to Streamline IPO Settlement Process

Clinton MorrowPartner, Charltons

On 16 November 2020, the Stock Exchange of Hong Kong (HKEx) published a concept paper outlining a proposal to modernise Hong Kong’s IPO settlement process[1] (the Concept Paper) through the introduction of a new IPO settlement platform (Fast Interface for New Issuance (FINI)), which will be a mandatory platform for the handling of future Hong Kong IPOs should the proposal be adopted.

The platform, which will be operated by the HKSCC, will essentially act as a central repository for data throughout the IPO settlement process for both the institutional and retail tranches of Hong Kong IPOs, allowing professional market intermediaries involved in the IPO process to coordinate in one place. Workflows will be streamlined, data will be constantly updated and tasks such as data aggregation, validation and processing will be automated.

The proposal aims to address the issues plaguing the incumbent IPO settlement process, namely the heavy reliance on manual operations and the lack of a shared infrastructure, which contribute to a prolonged settlement period (typically taking five business days), an uncompetitive feature of Hong Kong’s IPO regime.

The key features of the proposal include:

  • digitalisation of the IPO settlement process, involving: the discontinuation of paper-based subscription forms and withdrawal of support for faxes and cheques (brokers and share registrars may still serve clients in the manner they prefer, provided the data is entered into FINI in the prescribed digital form);
  • submission of placee lists via FINI, involving: automated validation of placee information; upload function for supporting information; functions to add, edit or withdraw submissions with ease; and electronic signatures appended to digital forms and submission where possible, reducing the need for wet signatures and mailing physical documents; and
  • reform of the pre-funding mechanism for the Hong Kong public offer so that only the actual share allotment value of each broker will be collected by the issuer after balloting.

The key benefit of the proposal is a shorter IPO settlement cycle, which will allow shares to start trading on “T+1”, the day after pricing. This goal was originally set out in the HKEx 2019-2021 Strategic Plan and compares favourably to Hong Kong’s current settlement timeline.

The HKEx welcomes feedback on the Concept Paper until 15 January 2021.

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