J.P. Morgan’s Bai Sijia: Hong Kong IPO New Rules Enhance Inclusivity and Boost Market Confidence

On August 1, the Hong Kong Stock Exchange (HKEX) published the consultation conclusions on its proposals to optimize the pricing mechanism and public market requirements for initial public offerings (IPOs) (referred to as the "Hong Kong IPO New Rules") and launched a further consultation on continuous public float requirements. Bai Sijia, Head of Hong Kong Equity Capital Markets and Corporate Finance at J.P. Morgan, recently stated in an exclusive interview with China Securities Journal that the new rules enhance the inclusivity and flexibility of the system while placing high importance on connectivity with the mainland market, injecting strong momentum and confidence into Hong Kong’s IPO market.

As a firsthand witness to the reforms, Bai Sijia noted in discussions with clients that HKEX has actively listened to market feedback. The reforms align more closely with market demands and are expected to further strengthen Hong Kong’s international competitiveness. Some global companies have also begun exploring Hong Kong listing plans following these reforms.

Lowering Barriers and Increasing Flexibility

During the reform process, HKEX received 1,253 non-duplicate responses to the consultation from various stakeholders. "We observed that one of the key objectives of this consultation was to balance the interests of three core groups—institutional investors, cornerstone investors, and retail investors—focusing on allocation ratios, pricing mechanisms, and participation rules," Bai Sijia said.

International price-setters dominate price discovery, cornerstone investors provide early confidence, and retail investors form the broad base of market participation. For instance, retail investors may seek higher public offering allocation ratios and clawback flexibility to improve subscription success rates; institutional investors may prefer guaranteed allotments to price-setting groups to ensure pricing efficiency; while cornerstone investors may focus on lock-up period stability to avoid disruptions to long-term investment plans. She noted that capital inflows into Hong Kong’s market have accelerated recently, with more mainland retail investors showing interest in Hong Kong IPOs.

The adjustments in the new rules strike a balance among these differing views. The changes reflect market calls for greater flexibility in allocations and balanced participation across investor groups. HKEX has responded by fine-tuning the rules to maximize price discovery efficiency, boost early investor confidence, and enhance retail participation.

Under the new rules, issuers must allocate at least 40% of initially offered shares to the book-building portion.

Bai Sijia explained that lowering the minimum allocation ratio from the originally proposed 50% to 40% preserves reasonable shares for cornerstone and retail investors while improving price discovery mechanisms. This further strengthens the book-building process led by professional institutional investors. The adjustment ensures sufficient allocations for retail investors while giving issuers reasonable decision-making flexibility.