Hong Kong Securities and Futures Commission takes proactive review of risk management for the margin financing of 8 securities firms' IPOs. Leung Fung-yi: To prevent excessive financing.

Recently, Hong Kong's new stock IPO oversubscriptions have repeatedly hit record highs. The Chief Executive Officer of the Hong Kong Securities and Futures Commission, Laura Cha, stated that they are currently reviewing the risk management of 8 securities firms active in IPO subscriptions, examining whether there are prudent credit policies in place, and assessing the clients' repayment ability to set appropriate credit limits or leverage ratios to prevent excessive financing. Cha stated that with the introduction of FINI, some new stocks have seen oversubscriptions in IPO subscriptions that are thousands of times higher, warning investors to be cautious about whether the actual demand for new stocks matches the oversubscription numbers. She also pointed out that the performance of some heavily oversubscribed new stocks during their initial public offering was not as good as expected, and the significance of the oversubscription multiples may not be as high as before. It is understood that the Securities and Futures Commission has been conducting inquiries through questionnaires with relevant securities firms on how they determine the ratio of oversubscriptions for new stocks, such as setting standards at 95%, 98%, or even 99%. The Commission also requires securities firms to explain their contingency measures if clients are unable to cover oversubscriptions, while also considering whether their financial resources are sufficient when offering high leverage. Industry sources analyzed that the Commission's inquiry with securities firms is related to the recent frenzy in new stocks, including BLOKS (00325), which recorded oversubscriptions in IPO subscriptions totaling billions of Hong Kong dollars. In addition, some industry insiders have pointed out that certain securities firms are bearing a significant amount of oversubscriptions through zero interest rates and high leverage, indirectly intensifying industry competition. These individuals mentioned that smaller securities firms, due to limited funds, struggle to provide similar services but may act as intermediaries to transfer clients' new stock applications to larger securities firms for subscription. However, they must split the commission income with the larger firms, intensifying competition. The Hong Kong Stock Exchange (00388) implemented the FINI mechanism in 2023. When facing oversubscriptions from clients, securities firms no longer need to lock in full amounts of excess funds as before, but only need to prepay the maximum number of shares they can be allocated in public offerings. The initial purpose of the mechanism was to reduce the impact of large new stocks on the Hong Kong dollar system. However, securities firms are now required to reserve funds to compress, and in recent months, many securities firms have been attracting clients with zero interest and zero fees, making IPO oversubscriptions even hotter. In recent months, the oversubscription multiples and frozen amounts for some popular new stocks have approached record highs. In December, HERBS GROUP (02593) had an oversubscription multiple of 6082 times, and earlier in the year, BLOKS (00325) had an oversubscription multiple of 5999 times, second only to MOST KWAI CHUNG (01716) in 2018. Among these highly popular new stocks, HERBS GROUP rose 10.4% on its first day of trading but has declined by 47% compared to its listing price. BLOKS has risen by 44% since its listing.