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HKEX Seeks Views on New Proposal to Modernise Hong Kong IPO Settlement Process

Corporate
16 Nov 2020

  • HKEX today launches its concept paper on FINI, setting out a new proposal to streamline Hong Kong’s IPO settlement process
  • Time gap between IPO pricing and trading to be shortened 80 per cent, from five business days to as little as one business day, making it amongst the most competitive in the world
  • Proposal will deploy intelligent technology to drive efficiency, alleviate funding lock-ups and digitalise Hong Kong’s IPO franchise
  • Feedback on the Concept Paper is sought by 15 January 2021

 

Hong Kong Exchanges and Clearing Limited (HKEX) is today (Monday) pleased to publish a Concept Paper seeking market feedback on its proposal to comprehensively modernise and digitalise Hong Kong’s IPO settlement process.

Under the proposal, HKEX will introduce a new web-based service called FINI (Fast Interface for New Issuance) that enables IPO market participants, advisers and regulators to interact digitally and seamlessly on the many steps that comprise the end-to-end IPO settlement process.

“For the last decade, Hong Kong has been the IPO capital of the world. It is vitally important that we continue to protect our global leadership position in the next decade and beyond by innovating and advancing our market infrastructure. FINI will secure our continued attractiveness and competitiveness as the global listing market of choice and we look forward to working with the Hong Kong IPO community on this exciting initiative,” said HKEX Chief Executive Charles Li.

By modernising both the logic and the infrastructure of the Hong Kong IPO settlement, HKEX expects that the introduction of FINI will shorten the time gap between IPO pricing and trading from its current average of more than five business days to as little as one business day: reducing the settlement timeframe by as much as 80 per cent. This will give investors quicker access to new listings, reduce market risk and improve efficiency for all parties involved.

Specifically, FINI will provide a single user-friendly platform that brokers, share registrars, IPO sponsors, lawyers, underwriters and distributors can use to share information and coordinate workflows during the offering initiation, subscription, pricing, allotment, payment, regulatory approval and stock admission processes – all steps that precede a newly listed company “striking the gong” to mark its trading debut.

In addition, HKEX’s Listing Division, wholly-owned subsidiary Hong Kong Securities Clearing Company (HKSCC), and the Securities and Futures Commission will use FINI to oversee the settlement process for each IPO as it happens, providing certain acknowledgements and approvals that may be required during the process directly via the new platform.

HKEX identified the shortening of Hong Kong’s IPO settlement process as a key initiative in its Strategic Plan 2019-21, as part of a broader range of market microstructure improvements. While Hong Kong’s primary market has evolved significantly in recent years, the logistics of how new shares start trading have not fundamentally changed in more than two decades.

“Technology Empowered is one of the key pillars of our strategy. Through FINI, we will deliver benefits to our market in three key ways: providing a globally competitive service for issuers seeking to list their shares, bringing our primary market firmly into the digital era and giving us an enhanced digital foundation on which to enable a whole suite of better services for investors,” Li added.

FINI has been designed to reflect Hong Kong’s unique listing regime and market structure, which will not be materially affected by the proposed reform. FINI will be managed by HKSCC alongside the existing Central Clearing and Settlement System (CCASS), which remains the central securities depository for the Hong Kong market.

“We believe that the FINI proposal put forward in this Concept Paper strikes the optimum balance between modernisation and continuity. We have sought to preserve the key strengths that have made our IPO market so successful, but also to embrace new thinking and technology to meet the ever-increasing expectations of global investors and issuers. We welcome your comments in helping shape the future with us,” said Li.

If the proposed concept is supported by the market, HKEX will build FINI as the settlement mechanism for every Hong Kong IPO, fully replacing the existing “T+5” process. An on-boarding programme will be organised in due course, allowing market participants to prepare for a one-time transition to become FINI-ready.

The launch date of FINI will be subject to market support and readiness, and is envisaged to take place no earlier than the second quarter of 2022.

The deadline for responding to the Concept Paper via the feedback form available at this link is 6:00 PM on Friday, 15 January 2021.

The key features of FINI:

Moving our market forward

  • End-to-end IPO settlement, in one place. FINI will provide market participants and regulatory authorities with a consistent real-time ‘golden source’ view of every active Hong Kong IPO in one convenient place, as each deal progresses from launch to completion.
  • Improved workflows and interactions. Dozens of separate tasks that are currently performed manually will be replaced by convenient and streamlined digital workflows on FINI. This will enable automation, operational precision and more robust risk controls throughout every IPO’s settlement journey.
  • Going paperless but staying inclusive. The IPO settlement process will go fully digital, meaning that paper-based documents, communications and payments will be replaced by more modern digital interactions. An open architecture will provide integration options and innovative service opportunities for market practitioners, while allowing intermediaries to continue catering to those investors who prefer an offline interaction.
  • Liquidity relief. FINI includes important alterations to the pre-funding mechanism for the Hong Kong public offer, whereby funds supporting IPO subscriptions will be validated at each broker’s designated bank, with only the actual share allotment value of each broker collected by the issuer after balloting. This intends to alleviate the distortive impact that over-subscribed IPOs are known to have on Hong Kong dollar capital flows and interbank money markets.

Preserving our strengths

  • Unchanged roles and responsibilities, with continuity for market participants. End-investors and issuers will not need to use FINI directly. Instead, the platform is intended to be used by professional market intermediaries (brokers, share registrars, IPO sponsors, lawyers, underwriters and distributors) whose roles, responsibilities and relationships will not fundamentally change with the introduction of FINI.

    It should be noted that certain key processes such as roadshows, book building, IPO pricing and balloting will remain conducted “off platform” in HKEX’s proposal, with FINI serving only to capture their outcomes for downstream processing.

  • No changes to the legal framework and listing regime. FINI is designed to be compatible with the legal framework governing Hong Kong’s securities market, and no material changes are contemplated to Hong Kong’s listing regime or to existing regulations governing the IPO subscription, allotment and approval process. While some changes to the Listing Rules are expected, the FINI proposal is otherwise independent of any other regulatory reforms to the Hong Kong listing regime.
  • Integrated with securities market infrastructure. FINI will serve as the entry point for newly issued shares to enter into CCASS, while maintaining the continuity of the latter’s Central Securities Depository function, as well as the rights and obligations of its participants. HKSCC Participants will be able to use their HKEX Client Connect credentials to access and use FINI via the internet.

 

About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets.  HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.

HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited.  This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange (QME), in China, in 2018.

HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.

www.hkexgroup.com

 

Ends

 

Updated 16 Nov 2020