Fairer deal needed for retail investors in IPOs
With Hong Kong's IPO activity picking up, brokers are calling for tighter rules on cornerstone investors as their retail clients are increasingly squeezed out of lucrative offers. Cornerstone investors do have their place in the market for initial public Offerings. Everyone wants to see deals launch smoothly and investment banks are happy to see a large take-up from the likes of tycoons and sovereign wealth funds before a share offer goes on sale to the public. Within 10 years, however, retail investors have gone from having a share of everything to slim pickings. Hong Kong is seen to have treated them shabbily in order to attract big institutional clients. The 200-odd brokers dependent on retail investors say it is time regulators looked after them too.
Safeguarding retail investors' interests through a level playing field is fundamental to Hong Kong's status as a global market. The city has principles about transparent pricing, certainty of corporate structure and fair representation through one share, one vote, that are important in this regard. It needs to be careful not to lose sight of them in the chase for big share listings. If retail investors are denied proper market access and equal treatment then essentially it is only insiders who ever make money, and they will run it to the detriment of others.
So-called dark pools are also a growing area of concern when it comes to free market access and transparency. Opaque trading venues run by banks and other institutions, they match institutional buyers and sellers without full disclosure of prices and trading flows. This can leave even professionals in the dark. Indeed, the New York attorney general is suing Barclays for allegedly misleading the bank's institutional customers into believing they had nothing to fear from the predatory activities of high-speed traders.
Another problem with cornerstone IPO investors is the six-month lock-up period for publicly traded stocks, which leaves the market thin on liquidity and open to manipulation, and then vulnerable to volatility after the stocks are dumped.
The stock exchange has failed in the past to win support for a proposal to restrict cornerstone investors. Investment bankers argue that without their support, many offerings would not be listed at all during market downturns. But given the importance of a vibrant retail investor sector, stakeholders and regulators should try to strike a balance that includes retail investors.