Subscription of New Stocks
I. General Rules
1. What is HK stock subscription?
A company’ going public, floatation or listing, also called initial public offering (IPO), refers to its initial offering of shares to the public at an issue price within a preset range for financing purposes. So “IPO subscription” refers to investors participating in the subscription of IPO shares for an opportunity to buy in shares at the finalized issue price on the day of listing.
To go public on HKMB, a company shall submit an application to the Stock Exchange of Hong Kong Ltd. (SEHK) for unified examination and approval and release, including international placement and public offering. International placement refers to direct sale to professional investors (generally, institutional investors or large individual investors), including cornerstone investors and anchor investors. Wherein, the shares placed to cornerstone investors are subject to a lockup period of half a year. According to relevant listing regulations, generally, international placement accounts for more than 90% of the entire issue size and the remaining is public offering, i.e. the IPO subscription involving retail investor. Additionally, there is a clawback mechanism set. If the proportion of public offering is increased by oversubscription times for public offering, then public offering can take up 50% of the entire issue size to the largest extent, to ensure sufficient opportunities for retail investors to participate.
2. Issue price and finalized issue price
The issue price range is usually provided based on corporate valuation and market factors by the underwriter. In general, the company will determine the final issue price, often within the offering price range, before official listing. According to the market conditions, the finalized issue price may go either beyond upper limit of the issue price range or below lower limit of the issue price range.
3. Subscription quantity
Subscription quantity of HK stocks is subject to a tiered system prescribed by Hong Kong Exchanges and Clearing Limited (HKEX) instead of own choice. And it varies with each stock. The minimum subscription quantity is 1 lot, which may equal to 100 shares, 200 shares or 1,000 shares in terms of HK stocks. At present, maximum subscription quantity is 1,000 lots.
4. Purchase open day
It refers to the date when Tiger Brokers starts to accept subscription application.
5. Purchase deadline
It refers to the date when Tiger Brokers stops accepting subscription application. Purchase deadline will be subsequently confirmed with clients who intend to subscribe.
6. Purchase period
Purchase period is often 3-4 days.
Wining ballot refers to a subscriber’s successful buying in all or part of subscribed shares at an issue price on the data of listing. During HK stock subscription, an investor may be provided with either all or part or even any quantity of subscribed shares. Therefore, the ballot wining rate for investors is not always 100%.
8. Date of announcement of stock sale results
The allocation results for new HK stock subscription are announced by SEHK, generally, on the trading day before the date of official listing.
After announcement of ballot results, the allocated shares are often received prior to market opening on the day of listing.
10. Rules of winning the lot in IPO subscription
The allocation mechanism for public offering of HK stocks is developed based on the tiered system, and it would be better to use the Generalized System of Preferences as such an allocation mechanism so that each participate is able to obtain 1 lot at least. However, popular new stocks will attract too many investors to participate, resulting in a lower ballot winning rate. You may check specific allocation results via information disclosure website of SEHK. Generally speaking, there are two rules:
(1) A larger subscription quantity means a larger allocation quantity. Therefore, the simplest way to obtain more new shares is to increase funds, and probably to use securities dealers’ financing.
(2) Equal division shall be carried out among all participants as far as possible. In short, all applicants for subscription of 100 lots will finally share the 100 lots equally and there will not be cases where some with bunch of lottery tickets do not win and where some experience a lot winning rate of more than 50%.
11. Rate for winning 1 lot in IPO subscription
It refers to the proportion of those wining 1 lot to total effective figure for all subscription applications for this 1 lot in terms of public offering.
For example, at the public offering stage of HaiDiLao Hot Pot (06862), the effective figure for subscription applications for 1 lot (i.e. 1,000 shares) is 6861, 4117 of which can share this 1 lot, resulting in a lot wining rate of 60.01%.
II. Financing for IPO subscription
1. Financing account requirements
All margin accounts support financing for participation in IPO subscription. Margin account is also called securities margin trading account, implying that total assets over USD2,000 form a necessary precondition for securities margin trading to securities dealers. The account opening default at Tiger Brokers is opening a margin account, except that any client does not meet the age requirements. According to relevant rules, only clients at age of 18-21 are able to open cash accounts*.
*Cash account, the most basic account type, prohibits from selling short stocks through securities margin trading and does not support financing function. And cash accounts are subject to the T+2 transaction clearing system, with Day Trade restricted.
2. Marginable Stocks in IPO subscription
Not all new HK stocks are supported by margin financing in their IPO subscription. Tiger Brokers provides financing for some HK stock IPO subscription applicants, but whether financing is applicable and the leverage ratio depend on the judgments on individual stocks by Tiger Brokers and its partners. Whether it is possible to conduct financing for subscription of individual stocks will be indicated on the new share subscription page.
3. How to conduct financing for IPO subscription?
Direct purchase of shares valuing a few times higher than available funds makes it possible to conduct financing for IPO subscription.
It refers to the funds or securities in the account pledged by a client in securities margin trading.
5. Interest period
For financing for HK stock subscription, an interest will be charged from the purchase deadline to the date of announcement of ballot results.
6. The lack of margin resulting in order down-regulation or rejection
If the margin in a subscriber's account is not sufficient to subscribe the indicated shares, the quantity of new shares subscription will automatically reduce to a quantity affordable by such margin. If the margin in the account is not sufficient to subscribe the minimum subscription quantity of new shares, the relevant order will be rejected.
7. Margin freezing and unfreezing
The margin for new shares subscription in the subscriber’s account shall be frozen after confirmation of new shares subscription, in order to ensure that in the subscriber’s account, there are sufficient funds for delivery of new shares after winning the ballot. Freezing funds does not mean deduction (or advance payment) but that these funds cannot be used for other purposes temporarily. If the ballot is lost, those funds will be automatically unfrozen.
Whether funds for HK stock subscription are frozen depends on whether there is financing for stocks. If it is impossible to conduct financing, such funds will be frozen as per 100% of upper limit of the offering price range. If it is possible to conduct financing for subscription, such funds will be frozen as per the financing ratio.
For example, a client applies to subscribe 10 lots (1,000 shares) from Meituandianping Inc. (MTDP), the offering price provided by MTDP ranges from HKD60/share to HKD72/share and the leverage ratio provided by Tiger Brokers is 4x for subscription. In such a case, the margin amount to be frozen is 1000*72/4 = HKD18,000.
After announcement of ballot results, the funds will be used to purchase new shares if the ballot is won; and the funds of unsuccessful transaction part will be frozen if the ballot is lost or partly lost.
III. Account-Related Operations
1. Subscription application page
Check the status of new shares subscription via Tiger Trade app — Findings — Subscription of New Stocks. If you fail to find the access to new shares subscription application, you may need to update the app to the latest version.
2. Subscription application status
(1) “Being submitted”: The user has submitted a subscription application and is waiting for approval from Tiger Brokers.
(2) “To be confirmed”: The user has submitted a subscription application to the securities dealer and is still allowed to modify or cancel the application.
(3) “Confirmed”: The user has submitted a subscription application to the securities dealer, but has not known clear allocation results yet. At this point, the subscription application cannot be modified or canceled.
(4) “Partly confirmed”: The margin cannot cover the stated subscription quantity, so the subscription quantity is automatically reduced to a quantity affordable by such margin.
(5) “Rejected”: The minimum subscription quantity requirement cannot be met with the margin, so the subscription application is rejected.
(6) Winner: All or part of subscribed shares has been received. The receipt of the shares may be somehow delayed.
(7) Loser: It means a failure to obtain the subscribed shares.
3. Modification of subscription application
It’s permissible to modify and cancel the subscription quantity throughout subscription application and until purchase deadline.
4. Currency for IPO subscription
USD IPO subscription can be conducted by margin account, and HKD financing can be carried out by cash account. HK stocks can be subscribed and purchased without currency exchange.
To exchange for HKD, you may click “Currency Exchange” via Tiger Trade app — Mine — Capital Account.
5. How to confirm subscription application when you apply to subscribe several stocks without sufficient funds?
(1) Standard account: Confirm subscription application in the sequential order of submission time of subscription application.
(2) Global account: Confirm subscription application in the sequential order of purchase deadline.
6. Can one person subscribe the same new stock through multiple accounts?
One person can only subscribe one new stock once. If the same subscription applicant uses different account numbers or applies for subscription from different securities dealers, the applicant will lose the opportunity to win this ballot.
In some cases, some brokerages do not require clients to provide their respective ID card or passport information when applying for subscription of new stocks, however they are obliged to ensure that every subscription applicant/beneficiary can only apply once.