Knowledge of New Hong Kong Stock
What is the one-lot winning rate?
The "one-lot winning rate" refers to the probability of winning one lot when applying for new shares.
What is Top Bidding?
"Top Bidding" refers to the situation where the number of shares applied for new shares is at most half of the number of shares offered for public sale (excluding clawback), as stipulated by regulations.
What are Group A and Group B?
Group A: Those who apply for an amount equal to or less than 5 million yuan.
Group B: Those who apply for an amount greater than 5 million yuan.
What are Institutional Cornerstone Investors?
Institutional cornerstone investors refer to institutional investors who subscribe for shares of a company before its listing on the Hong Kong Stock Exchange as strategic investors and accept a lock-up period of 6 to 12 months. These investors mainly include banks, insurance companies, hedge funds, sovereign wealth funds, pension funds, large institutional investors, major corporate groups, and well-known tycoons or their affiliated companies.
What is a Sponsor?
Sponsor refers to a company licensed or registered by the Securities and Futures Commission of Hong Kong or authorized financial institution. The sponsor is responsible for assisting the applicant in preparing for listing matters, providing professional advice on listing to the prospective listed company, assisting it in dealing with various listing matters, and serving as the main communication channel between the prospective listed company and the Stock Exchange of Hong Kong, the Securities and Futures Commission of Hong Kong, and various professional intermediary agencies. Operationally, the sponsor should submit the formal listing application form and all relevant documents to the Stock Exchange. The sponsor should ensure that relevant important information is fully and accurately disclosed in the prospectus and ensure that all directors of the prospective listed company understand their responsibilities as directors of a listed company.
What is an Underwriter?
Underwriter refers to a securities firm that acts as the sole underwriter or leads the underwriting syndicate in the issuance of shares in a stock offering. Internationally, underwriters of stock offerings are generally reputable and powerful merchant banks (in the UK), investment banks (in the USA), and large securities firms.
What is Green Shoe Mechanism？
The "Green Shoe" mechanism is a colloquial term for the overallotment option system, also known as the Green Shoe Option.
It refers to an option granted by the issuer to the lead underwriter within 30 days after the stock is listed. The lead underwriter can opportunistically issue up to 15% more shares than the predetermined amount at the same offering price.
If the stock price falls below the offering price after the listing, the lead underwriter uses the funds obtained from the pre-allocated shares (funds subscribed by investors for the over-allotment) to buy back shares from the secondary market at a price not higher than the offering price, then distributes them to those who have made over-allotment applications.
What is Red Herring？
A "Red Herring" refers to a document used in the initial public offering (IPO) of a company's stock. Its primary purpose is to conduct due diligence to gain public trust and obtain approval from government agencies. This document is typically called the Red Herring Prospectus, also known as the Preliminary Prospectus. Although the Red Herring Prospectus does not contain specific offering prices, it includes almost all information related to the public offering, including the price range. After the filing of the prospectus, underwriters usually release the preliminary prospectus. Since the securities registration is not yet effective at this time, the SEC requires the use of red lettering on the cover of the Red Herring Prospectus to explicitly indicate this, hence the name "Red Herring."
What is Dual-Class Share Structure?
Dual-Class Share Structure refers to when a company issues at least two types of shares – common shares and preferred shares – simultaneously. These two types of shares differ in voting rights, with preferred shares having up to 10 votes per share, while common shares have only one vote per share.
In contrast, the Dual-Class Share Structure system refers to a system where every share has the same voting rights regardless of the shareholder's identity. Whether it's the company chairman or a minor shareholder, each share has equal voting rights.
Hong Kong used to have a long-standing practice of implementing the same-shareholder same-rights system. However, in 2014, due to Alibaba's plan to list in Hong Kong, but constrained by Hong Kong's same-shareholder same-rights regulations, it eventually chose to list in the United States. In order to attract more innovative companies to list in Hong Kong, since April 2018, the Hong Kong Stock Exchange has started to allow companies with dual-class share structures to list in Hong Kong, with Xiaomi Group being the first company to list in Hong Kong in this manner.
What is the subscription multiple?
The subscription multiple refers to the ratio between the demand for a stock during its subscription period and the actual issuance quantity. It reflects investors' recognition and willingness to purchase the stock. Generally, a higher subscription multiple indicates stronger demand from investors and higher confidence in the market. The subscription multiple is one of the key indicators for investors to evaluate the popularity and demand for a new stock issuance.
What is the entry fee for Hong Kong stocks?
The entry fee for Hong Kong stocks refers to the minimum capital requirement for participating in the subscription of new Hong Kong stocks, i.e., the cost of subscribing for one board lot of new stocks. During the issuance of new stocks in Hong Kong, a maximum and minimum price range is set, and investors subscribe at the maximum price. If the subscribed funds significantly exceed the issuance quantity when the lottery results are announced, the subscription price will be determined at the maximum price; if the subscribed funds are insufficient, the subscription price will be determined at the middle or minimum price.
The entry fee includes the cost required for subscribing for one board lot of new stocks, calculated by the formula: Entry Fee = (1 + 1.00785%) number of board lots upper subscription price. Part of the entry fee (1.0085% number of board lots upper subscription price) includes broker commissions, SFC levies, HKEX trading fees, and SFC levies. If investors fail to win the lottery in the subscription, this part of the fee will be refunded.
What is margin trading for new stocks?
In the Hong Kong market, margin trading is a financing service where investors use funds provided by securities firms or banks to invest in stocks. By opening a margin account, investors can leverage the provided financing amount to magnify investment returns. Typically, securities firms or banks charge interest as a service fee.
For new stock subscriptions, each brokerage firm determines the amount it can lend to customers for purchasing stocks based on its own risk assessment, with a maximum leverage ratio usually set at 9 times. For example, if there are HKD 10,000 in the account, the maximum amount that can be financed for the subscription of new stocks is HKD 100,000, of which HKD 90,000 is the financing amount. However, not all Hong Kong stocks can be used for collateral financing, and the collateralization ratios for different stocks vary.
Interest on margin financing is typically calculated from the subscription deadline to the announcement date.
What is dark pool trading?
Dark pool trading, also known as off-exchange trading, is a unique trading method in the Hong Kong stock market. In this type of trading, buyers and sellers directly match quotes within certain large brokerage internal systems, rather than through the HKEX trading system. Because these transactions are not disclosed by the exchange, they are referred to as dark pool trading.
In dark pool trading, once a buyer quotes a purchase price and quantity, regardless of whether there is a seller to match, that price becomes the dark pool price. Typically, dark pool trading occurs during a specific time period on the day before the listing of new stocks (from 16:15 to 18:30 on the day before the listing).
The advantage of dark pool trading is that it allows investors to get ahead and participate in new stock trading in advance. Additionally, it can help investors lock in profits and stop losses in a timely manner, providing reference for the trend of new stocks.
How is the allocation of public offering and international placement done?
In Hong Kong, the new stock offering typically consists of two phases: international placement and public offering. The international placement comprises the majority of the offering, around 90%, and is distributed by the sponsors and underwriters to institutional investors, funds, and individual clients with substantial funds. Generally, these investors are required to have assets worth at least HKD 30 million or an investment portfolio of at least HKD 8 million to qualify. The remaining approximately 10% of shares are made available to all investors through the public offering.
If the public offering is oversubscribed, meaning the subscription multiple is high, such as over 100 times, a certain proportion of shares will be reallocated from the international placement to the public offering. For example, if the reallocation proportion is 50%, then half of the shares originally allocated to the international placement will be adjusted to the public offering, resulting in an equal distribution between international placement and public offering. This reallocation mechanism applies to both the Growth Enterprise Market (GEM) and the Main Board in Hong Kong.