Rules to ensure fair IPO allocation
The Securities and Futures Commission and stock exchange are to introduce new measures designed to improve the offering mechanism for new share issues.
The existing offering system combines a book-building placement to international institutions and an initial public offering (IPO) for retail investors.
The new measures emerged in a report following a consultation exercise begun last June aimed at giving retail investors greater access to new share issues. Eight submissions were received, one representing 15 financial institutions.
The consultation arose out of concern that public participation in new offerings had fallen significantly in 1994 and 1995 to about 10 per cent of issues, failing to meet domestic investor demand.
Under the new measures, regulators have decided to set up a formula for the subscription tranche, requiring at least 10 per cent of the whole new share issue to be allocated to the retail public through the IPO.
If the IPO is between 15 and 49.9 times subscribed, more shares must be clawed back from the placement tranche to satisfy demand.
The number of shares issued under the IPO must then rise to 30 per cent of the whole new share issue.
If the IPO is between 50 and 99.9 times subscribed, the clawback number would increase to 40 per cent, and to 50 per cent in the case of subscriptions of more than 100 times.
The regulators have opted to continue with the measure that the IPO shares must be equally divided into two pools - Pool A for applicants applying for new shares valued at less than $5 million and Pool B for applications for shares worth more than $5 million.
The stock exchange will retain its right to reject a new listing's application to include an international placement and to insist that all new shares are issued through an IPO if there is heavy public demand.
