The service isn't cheap. He has to give half of any profit to his counterpart, that is, he bears all the cost, risk and 50 per cent of the profit. And to get into the game, he has to put in bets with a minimum of HK$100 million.

But money is not a big problem for Mr Chan. He's rich enough to have been served by a European private bank for years. Besides, he didn't have to put up all the cash. A banker confirmation showing he has HK$10 million sitting in the account was good enough.

The 50-50 profit sharing is demanding. But most new stocks have a double-digit surge in the first day of trading. Half of that will be decent enough a return for Mr Chan. Sure, he could queue up for the stock as a private bank client but he knows only too well how investment banks work - damn the private bank client if the deal is hot and stuff the private bank client if the deal is bad.

Mr Chan, who is no stranger to the 'under-the-table' pre-initial public offering placement, also likes the security offered by the scheme.

In the old game, stock would be put into a third party account instead of one under his own name. Investors got hold of the stakes by trading the ownership of a nominee company that was holding the account. Though contracts were always signed, there was risk. (For details, please refer to my column on November 27, 2007.)

Under the new scheme, he got an account with a 'respectable' brokerage house under his name or his nominee. He would be informed of the size of allocation two days before the official allotment announcement.

Then he will put money into the account according to the allotment and secure the stock.

In short, he's getting the stock via the 'official' system. And no stock, no pay. The risk is much minimised.

His first score is with a mainland industrial firm. The stock was hot, with billions of dollars of orders pouring in every day.

Two days before the allocation was announced, Mr Chan got a call from the agent congratulating him on a HK$10 million allocation. Given that the stock was heavily oversubscribed in both its public and international tranches, any institutional client would be happy enough to get HK$20 million worth of allocation. Mr Chan was more than happy. He put HK$10 million into his account.

On the first day of trading, the share rose by over 50 per cent. For a HK$10 million investment and HK$986 in interest costs, Mr Chan is sitting on a paper profit of over HK$2.5 million within four days. He can choose to sell or to hold on as long as he settles with his counterpart within five trading days. Mr Chan opted out and reaped millions.

But who is powerful enough to get the guy a bigger than usual piece of the new stock, in particular a much sought after one; and promise it in advance? How can this be done in broad daylight?

Well, no one has access to the allocation except the issuer and its sponsor. Theoretically, the sponsor's equity capital market department will allocate shares according to a few principles: keep post-initial public offering trading active; keep the stock above initial offering price and keep major clients happy.

So investors are graded according to whether they are long-term holders or like to flip stock, whether they have been a significant fee contributor to the sponsor; and when they submitted their order.

The issuer will agree on the allocation list, which will then be submitted to the regulator with the confirmation that there is no person connected to the issuer or the sponsor.

Sounds fair and scientific? But the reality is different. Getting a firm listed is not an easy thing, in particular if it is on the mainland. Both the issuer and the sponsor have a lot of favours to repay.

It can be the issuer's financial controller who chooses the investment bank. It can be the local official who put a stamp on the paper that says the issuer has paid up all the taxes. It can be someone in Beijing whose single phone call turns the stern face of a regulator into a smiling one. It can be the exporter who has backdated a purchase so the issuer's profit looks much better.

A former investment banker, who has worked in the equity capital management department of three international brokerages, recalled how 'friends' lists were handed down from the very top of the house on the day of allocation. The highest cut he has seen was 15 per cent for an international placement of a red chip offering in the 1990s.

These friends are the key sources of pre-initial offering stocks. Of course, there are also bankers who supply stock for a quick profit. Theoretically, one has to justify every name on the list but how's the boss going to cross-check whether an account is held by a tycoon as claimed by his subordinate, he added.

As I've said, under-the-table pre-initial public offering placement is nothing new. What's surprising, if not alarming, is the promise to Mr Chan that he would be able to get a piece of every new offering in the coming months. This would involve different issuers and sponsors.

There are two possibilities. One, his agent is bluffing. Two, the operation of pre-initial public offering placement has become so sophisticated that a syndicate offering standardised service is in place.