On August 1, Hong Kong Exchange & Clearing (00388), through its wholly-owned subsidiary The Stock Exchange of Hong Kong Limited (SEHK), announced optimizations to IPO market pricing and public market regulations, with new rules taking effect on August 4, 2025. The retail clawback ratio cap has been adjusted to 35% (from the previously proposed 20%), while the 6-month lock-up period for cornerstone investors remains unchanged without relaxation. Additionally, new initial free float requirements have been introduced to ensure sufficient tradable shares at listing. SEHK is also conducting further consultation on continuous public shareholding requirements, aimed at enhancing market flexibility while strengthening shareholder protection.

Summary of IPO Market Pricing and Public Market Reform Proposals

SEHK received 1,253 unique responses from various stakeholders regarding the consultation document. After considering these responses, SEHK will adopt most of the proposals from the consultation document with minor revisions and clarifications.

Bonnie Y Sham, Head of Listing at Hong Kong Exchange & Clearing, stated: "As one of the world's most active equity capital markets, Hong Kong has attracted issuers from various industries to list here over the past two decades. These IPO offerings have grown increasingly larger in scale and attracted a more diversified range of international investors. To maintain international competitiveness and continue attracting excellent next-generation companies to list in Hong Kong, we must keep pace with the times and continuously optimize our listing regime to ensure our standards align with international markets."

Sham continued: "Through these reforms, Hong Kong Exchange & Clearing aims to enhance the robustness of IPO pricing and allocation mechanisms while balancing the needs of various types of local and international investors participating in IPO subscriptions. We have also revised initial public shareholding requirements to provide issuers with greater flexibility and certainty, and introduced new initial free float requirements to ensure sufficient tradable shares at listing. We sincerely thank all market stakeholders for providing valuable feedback during the consultation process, helping us adjust and formulate final proposals to jointly promote sustainable development of Hong Kong's IPO market."

Main Changes to Listing Requirements include:

IPO Offering and Pricing Mechanisms

1. Minimum Allocation Share for Book-building Portion: Requires issuers to allocate at least 40% of shares initially intended for offering to the book-building portion during IPO. (Minimum allocation ratio lowered from originally proposed 50% to 40%.)

2. Allocation to Public Subscription Portion: Allows new listing applicants to choose between Mechanism A or Mechanism B as allocation mechanisms for IPO offerings:

Mechanism A: Replaces current allocation and clawback mechanism with the following designated allocation ratios for public subscription portion: Maximum clawback percentage allocated to public subscription portion under Mechanism A increased from originally proposed 20% to 35%.

Mechanism B: Introduces new mechanism option requiring issuers to pre-select an allocation ratio to public subscription portion, with minimum 10% (maximum 60%) of offered shares, without clawback mechanism. (Maximum percentage allocated to public subscription portion under Mechanism B increased from originally proposed 50% to 60%.)

Non-adopted Proposals: SEHK has decided to retain existing 6-month lock-up period requirements for cornerstone investors to maintain investor commitment to offerings. Additionally, considering practical difficulties mentioned by respondents during consultation, the proposed pricing flexibility enhancement mechanism will not be implemented.

Public Market Regulations

3. Initial Public Shareholding and Free Float: Requires issuers to comply with minimum public shareholding and free float requirements at listing:

SEHK will continue to have discretionary power to grant exemptions to new applicants from above requirements based on individual facts and circumstances.

New regulations take effect on August 4, 2025, and apply to all issuers and new listing applicants publishing listing documents on or after that date. Current continuous public shareholding requirements have undergone corresponding transitional amendments to ensure compatibility with new initial public shareholding requirements. These transitional arrangements will be replaced by new regulations after completion and implementation of further market consultation on continuous public shareholding (see below).

Further Consultation on Continuous Public Shareholding Proposals

In response to market views on establishing appropriate continuous public shareholding requirements, SEHK has initiated further consultation on detailed proposals for these requirements.

Sham said: "We are pleased to conduct further market consultation on continuous public shareholding requirements. We are committed to continuously optimizing Hong Kong's Listing Rules to meet the needs of global issuers across different industries and scales. These proposals provide greater flexibility for issuers to facilitate better capital management while introducing strong measures to prevent long-term non-compliance and strengthen protection of company shareholders' interests. We thank all market sectors for continuing to provide valuable feedback."

Comparison between current and proposed continuous public shareholding requirements:

SEHK is soliciting market views on continuous public shareholding proposals and corresponding Listing Rules amendments required to implement these proposals. The public consultation period ends on October 1, 2025.