HKEX expects no stock price control risk under a lower public shareholding bar

Lowering the public float requirement threshold for new listings does not pose a share price control risk, said Hong Kong Exchanges and Clearing (0388) chief executive Bonnie Chan Yi-ting. 

In an article on HKEX’s reform of new stock pricing, Chan recommends introducing a tiered threshold for initial public offering as it is not easy for some large or super-large companies to meet the public shareholding requirement of no less than the range between 15 percent to 25 percent.

She suggests different thresholds ranging from 5 percent to 25 percent for companies of different market cap levels. 

Chan believed that lowering the threshold would not pose risks of share price manipulation as the proposed introduction of a minimum initial free float requirement at the same time, which was in line with the requirements of most international operators, would ensure a fair and orderly market.

Meanwhile, Chan said the higher number of investors participating in the bargaining during the share allocation process can ensure that the price reflects actual market demand and reduce the likelihood of the offering price being set too high, or even of the stock price falling below the offering price after listing. 

She noted cornerstone investors enjoy a certain bargaining power within the range of the new share offering price as the bookbuilding allocation is primarily sold to institutional and professional investors. 

The HKEX’s proposal of increasing the proportion of shares allocated through bookbuilding aims to enhance the participation of investors with bargaining power in the new share pricing process, Chan added.

CICI CAO