IPO frenzy undeterred by orders probe

Editorial | Mary Ma 22 Feb 2021

The frenzy surrounding initial public offerings might have brought small investors a different kind of hope - an alternative income source as their regular earnings suffer during the pandemic.

Gains from IPOs might at least compensate for some of their losses.

Public responses to the IPO exercise of mainland cancer screening biotech New Horizon Health were eye-popping.

Yet the fever over New Horizon's IPO has also openly exposed the issue of multiple subscriptions by some investors.

Multiple subscription has not appeared out of the blue. The practice is explicitly forbidden by local regulations, yet this apparently has not been a major concern to market regulators until now.

Hong Kong Exchanges and Clearing's demand for brokers to hand over basic information - including the name and identity card number of investors who had successfully subscribed New Horizon shares - was unprecedented in the high profile in which it was made.

The high-key approach has instantly raised concerns in the market. What is the exchange up to?

Admittedly, multiple subscriptions were rare before it became common for mainlanders to open brokerage accounts in the SAR to trade in Hong Kong stocks.

In those days of grace, it was common for retail investors to increase their chance of subscription by mobilizing every family member and relative to maximize the number of applications or by borrowing margins to enlarge their subscription application.

Yet it's lawful and investors - while trying to get around the limit - continue to play by the rules.

Now, it is not uncommon for investors - many from the mainland - to open accounts at different brokerage firms and subscribe through them in a hot IPO.

This is unlawful. However, without a workable mechanism, it becomes a cat-and-mouse game.

Not only is it well known in the market, but the practice is even promoted publicly on some social media platforms in the mainland.

So it did raise some eyebrows when HKEX suddenly played it up to voice concern over what was already a known secret.

There can be a handful of possibilities.

First, there is no question that the exchange has received complaints from market players in respect of the New Horizon IPO. Who wouldn't be disgruntled when some rule-abiding investors were forced out of the IPO empty-handed and had to pay interest for the margins borrowed?

Perhaps they should have made their complaints earlier instead of having waited until now.

And could the unexpected move by the exchange be a curtain-raiser to a drastic clampdown to follow? While this is certainly a concern to keep monitoring, it is less likely that drastic changes are imminent. Incidentally, the current system does not operate in a way to make that easy.

About 11,000 New Horizon subscriptions have been found to be duplicated as a result of the exchange's demand. But some media reports have also quoted market insiders as saying that the actual figure could be more than that.

The issue may not end quickly. Let's keep monitoring what the exchange will do next.

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