HKEX Implements New IPO Reforms to Enhance Global Market Competitiveness

Hong Kong Exchanges and Clearing Limited (HKEX) has formally adopted sweeping changes to its initial public offering (IPO) pricing structure. Following the publication of consultation conclusions on August 1, the new regulatory framework will come into force on August 4, aiming to modernize listing standards and improve capital market efficiency.

Among the key revisions are new allocation ratios for share offerings, a reduced public float requirement, and enhanced provisions to support dual-listed companies holding both A-shares and H-shares. Under the amended framework, a minimum of 40% of shares in new listings must be assigned to bookbuilding investors. The mandatory six-month lock-up period for cornerstone investors remains intact.

This reform effort traces back to a consultation document issued in December last year. In February, HKEX Chief Executive Nicolas Aguzin characterized the initiative as one of the most extensive recalibrations of Hong Kong’s IPO pricing approach in nearly thirty years. The primary objective is to recalibrate listing policies in line with market realities and to reinforce the city’s status as a leading international capital formation venue.

HKEX aims to introduce a more adaptable and transparent pricing model for issuers and investors alike, with a focus on enhancing overall efficiency in IPO processes. The updated guidelines are also designed to appeal to global market participants and strengthen Hong Kong’s role as a financial nexus.

Historically, the IPO allocation model favored a 10% allotment to retail investors and 90% to institutional placement, encompassing both cornerstone and bookbuild participants. A clawback mechanism previously enabled retail tranches to be increased to as much as 50% depending on oversubscription rates—often complicating allocation visibility for institutional investors when retail demand surged unexpectedly.

The revised rules now require no less than 40% of an offering to be allocated to bookbuilding investors, a reduction from the original 50% proposal in the consultation phase. Katherine Ng, Head of Listing at HKEX, noted that IPO transaction sizes have expanded significantly—often five to tenfold compared to earlier periods—and feature growing participation from global institutional investors. Recent large-scale listings reveal a substantial overseas footprint in cornerstone and bookbuild allocations, validating the need for reform.

Investment banking professionals have welcomed the 40% mandate, citing improved price formation and diminished volatility risks stemming from retail speculation. Ng emphasized that institutional investors contribute nearly 90% of overall market activity in Hong Kong, underscoring the importance of balanced share allocation between retail, institutional, and international participants. She warned that insufficient institutional pricing input may impair price discovery and lead to instability following listing.

Under the new rules, issuers may now choose between two public subscription allocation models—Mechanism A or Mechanism B. Mechanism A increases the maximum clawback limit from 20% to 35%, effectively reducing the maximum public tranche from 50% to 35%. A board secretary from a listed firm commented that this adjustment curbs the ability of small-cap issuers to skew allocations through excessive retail clawbacks.

Mechanism B introduces a fixed allocation model, allowing issuers to predetermine retail tranche proportions—ranging from 10% to 60%—without clawback provisions. This approach offers flexibility for offerings driven by institutional demand, permitting issuers to maintain as low as 10% in retail allocation to stabilize initial trading performance.

HKEX is concurrently reviewing amendments to its continuous public float requirements, with consultations open until late October. The current mandate requires a minimum public float of 25%, or the figure agreed upon at the time of listing. Ng remarked that the 25% threshold—established in earlier regulatory cycles—offers limited flexibility and stands above global norms, which poses challenges for large-cap listings.

To improve alignment with international benchmarks, HKEX intends to implement a tiered float framework tied to issuer market capitalization, aimed at bolstering the appeal of its listing regime.
Aguzin has previously emphasized that float rules exist to preserve liquidity and deter market manipulation. HKEX's comparatively rigid float regulations may hinder new listing activity, especially when juxtaposed against more lenient standards adopted elsewhere.

Per the consultation, standard issuers may elect either a 25% float or a cap-based alternative of HKD 1 billion at a 10% float rate. For A+H issuers, the new guideline allows for a minimum float of HKD 1 billion or 5% of total H-share issuance.

With an influx of A-share companies preparing to pursue Hong Kong listings, market observers and stakeholders have noted that previous float requirements for dual-listed firms lacked adaptability. Ng clarified that since these entities must adhere to mainland float rules, a tailored and flexible approach for their Hong Kong listings offers a more feasible solution.

HKEX also amended its free float definition. A+H issuers must now meet a minimum free float equivalent to 5% of total A+H shares, replacing the previous 10% requirement based solely on H-shares. This adjustment seeks to maintain post-IPO liquidity and harmonize the listing structure with global norms.

In terms of delisting policies, the existing framework allows for removal from the Main Board following an 18-month suspension, and from the GEM Board after 12 months. The consultation proposes a new designation for stocks falling below acceptable float levels, with delisting triggered if rectification does not occur within the specified period.

Ng reaffirmed HKEX’s dedication to refining its listing system to accommodate issuers across a wide range of industries and capitalizations. These reforms are aimed at offering expanded strategic options for fundraising while maintaining robust compliance mechanisms that safeguard investor interests