SFC proposes price support for IPOs
Brokers and investment bankers could support the share price of a new listed company under a Securities and Futures Commission (SFC) proposal.
This would be a big change for the SAR market as such a practice is now illegal and considered market manipulation.
The SFC proposal is intended to make it easier for companies to raise funds in Hong Kong through initial public offerings (IPOs).
A consultation paper issued by the SFC yesterday said investors would feel more comfortable subscribing to new shares if they knew someone could support the share price of a company in a regulated way shortly after the listing.
The change is an attempt by the SFC to bring Hong Kong more in line with international markets. Price stabilisation for IPOs operates in the US, Britain and Singapore.
Under the SFC proposal, price stabilisation would be allowed only for new listings with a public offering of more than HK$200 million.
The company would have to appoint a broker or bank to act as a stabilising manager to carry out the support activities. The manager would need to keep trading records of the stabilising activities for seven years for SFC inspection when required.
Stabilising activities would be allowed only for 30 days after the listing prospectus was issued.
The manager would not be able to trade a stock at a price higher than the offer price. This is to make sure the manager could only support the share price, not manipulate it to a higher level.
The manager would also need to issue to the public prior disclosure of its intended stabilising actions.
The SFC said it had modelled the proposed rules closely on the regulations in Britain.
This was because of the similarity between the Hong Kong securities regulatory framework and that of Britain.
The rules would provide a so-called 'safe harbour' for those wishing to conduct price stabilising actions in connection with IPOs, it said. Those who conducted the stabilising activities according to the SFC requirements would not be considered to be manipulating the market.
The public is invited to submit comments in writing on the proposal before close of business on March 8.