Response: Conclusions and Further Consultation Paper | Proposals to Optimise IPO Price Discovery and Open Market Requirements
Release Date: 2025-09-09
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Response: Conclusions and Further Consultation Paper | Proposals to Optimise IPO Price Discovery and Open Market Requirements
The Hong Kong Securities and Futures Professionals Association (hereinafter “the Association”) submitted a response on 22 February 2025 to the HKEX’s “Proposals to Optimise IPO Price Discovery and Open Market Requirements” clearly stating multiple positions of support and opposition. The Association supports calculating public float by class basis, introducing a tiered initial public float threshold, strengthening disclosure requirements, and retaining a lock-up period for cornerstone investors, noting these measures would help enhance market transparency and international competitiveness. However, the Association opposes lowering the public float threshold for GEM issuers and establishing an off-exchange trading venue, expressing concerns these changes would impair liquidity and investor protection. While generally supportive of the reform direction, the Association stresses the need to balance issuer needs with market stability.
In response to HKEX’s “Conclusions and Further Consultation Paper | Proposals to Optimise IPO Price Discovery and Open Market Requirements” the Association draws on industry expertise and market practice to offer the following comments. The Association broadly supports HKEX’s efforts to refine existing rules, believing the proposals will improve market flexibility, international competitiveness, and regulatory efficiency, while emphasizing that issuer compliance costs and investor protection must be balanced. The Association recommends that HKEX fully consider practical market operating needs when implementing details and ensure alignment with international standards.
Question 1
1.1 Do you agree with the proposal to implement the Alternative Threshold, which will provide an alternative ongoing public float threshold for issuers in addition to the Initial Prescribed Threshold (as set out in paragraphs 310 to 312 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
- Response: Our association agrees with the proposal. The reasons are:
- Flexibility: For issuers with larger market capitalizations, the market value corresponding to the 25% shareholding threshold is often substantial. The alternative threshold (HK$1 billion and 10%) allows them to conduct post-listing capital management operations such as share buybacks and issuances more flexibly.
- Avoiding unnecessary liquidity pressure on large-market-cap issuers from rigid requirements, which helps maintain the vibrancy of the capital market.
- Enhancing market efficiency: Making capital allocation more effective, thereby increasing shareholder value.
1.2 If your answer to Question 1.1 is “yes”, do you agree with the proposed threshold figures (i.e. HK$1 billion and 10%) for the Alternative Threshold (as set out in paragraph 312 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposed threshold levels for the Alternative Threshold. The reasons are:
- Reasonably balances market realities and regulatory objectives, meeting the needs of large-market-cap issuers.
- Aligns with requirements of other international exchanges, enhancing the international competitiveness of the local market.
- The fixed threshold of HK$1 billion helps safeguard the minimum public float market value, maintaining sufficient liquidity in the open market.
1.3 If your answer to Question 1.1 is “yes”, do you agree that for the purpose of determining whether the market value of shares held by the public meets the market value limb of the Alternative Threshold , the market value of an issuer’s shares will be determined on a rolling basis by multiplying (a) the number of shares held by the public as of the date of determination by (b) the volume weighted average price of the shares listed on the Exchange over 125 trading days immediately prior to the date of determination (as set out in paragraph 316 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposed method for determining the market value on a rolling basis. The reasons are:
- Smoothes short-term stock price fluctuations, reflecting a more robust fair value and avoiding the impact of short-term price anomalies on the requirement.
- Using volume-weighted average price is a common market valuation method with industry acceptance.
1.4 If your answer to Question 1.1 is “yes”, do you agree that a listed issuer would not be able to rely on the Alternative Threshold if the issuer’s shares have traded for fewer than 125 trading days since listing on the Exchange?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposal. The reasons are:
- Safeguarding data quality by ensuring the VWAP calculation for the Alternative Threshold is based on a sufficiently robust and accurate dataset.
- Preventing new stocks with unstable valuations from facing unreasonable compliance requirements, thereby ensuring thresholds are set reasonably and easily adhered to.
1.5 If your answer to Question 1.1 is “yes”, do you agree that, in the case of an issuer seeking to switch from relying on the Initial Prescribed Threshold to the Alternative Threshold, if its listed shares have been suspended from trading for more than five consecutive business days during the 125-trading-day period for determination of the market value of shares, the Exchange may require the issuer to extend the 125-day period to demonstrate that it can meet the Alternative Threshold over a reasonable period after resumption of trading?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposal. The reasons are:
- Reasonably compensates for insufficient trading data caused by suspensions, avoiding unfair treatment due to non-market or issuer-specific factors.
- The flexible mechanism helps safeguard the fairness and accuracy of calculations.
1.6 Do you agree that the same ongoing public float requirements that apply to Main Board issuers should be applied to GEM issuers?
Please give reasons for your views and any alternative suggestions.
Response: The Committee agrees with the proposal. The reasons are:
- Market positioning: GEM should be regarded as a set of listing requirements and standards by HKEX specifically designed for small and medium-sized enterprises (comparable to listing requirements such as Chapter 18A and 18C).
- Consistency: Maintaining alignment in rules between the Main Board and GEM markets enhances overall market transparency and fairness.
- Investor confidence: Strengthening investor trust, particularly for issuers operating across multiple markets.
Question 2
2.1 Do you agree with the proposed bespoke ongoing public float threshold figures (i.e. HK$1 billion or 5%) for a PRC issuer with other listed shares (such as an A+H issuer) (as set out in paragraph 341 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposed bespoke ongoing public float threshold figures (i.e. HK$1 billion or 5%) for PRC issuers with other listed shares (such as A+H issuers). The reasons are:
- Adjusting the shareholding threshold better aligns with the characteristics of A+H dual listings and capital structure changes, allowing mainland Chinese issuers to flexibly respond to secondary financing.
- The 5% threshold reduces the difficulty of calculation based on higher percentages, enhancing compliance flexibility.
2.2 Do you agree that the bespoke ongoing public float thresholds for PRC issuers with other listed shares should also apply (as modified) to non-PRC issuers with shares listed on a PRC stock exchange (e.g. RMB shares), if those shares are in the same class as, but are not fungible with, the shares listed on the Exchange (as set out in paragraph 342 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposal. The reasons are:
- Ensuring reasonably fair treatment for issuers in similar circumstances.
- Promoting cross-border capital market synergy and enhancing international attractiveness.
Question 3
3.1 Do you agree with the proposal that all issuers be required to confirm, in their monthly returns and annual reports, whether they have met their applicable Ongoing Public Float Thresholds?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposal. The reasons are:
- Enhancing market transparency by enabling investors and market participants to promptly understand the issuer's shareholding compliance status, aiding in investment risk assessment.
- Encouraging proactive compliance management by issuers through regular disclosure, preventing issues of insufficient public float.
- Supporting regulatory monitoring and timely intervention to ensure market stability and order.
- However, overly frequent disclosure requirements may lead to information fatigue, causing investors to overlook critical data.
3.2 Do you agree with the proposal that issuers relying on the Initial Prescribed Threshold must disclose the minimum percentage threshold applicable to them in their monthly returns (as set out in paragraph 352(a)) of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Response: Our association agrees with the proposal. The reasons are:
- Clearly disclosing the minimum public float percentage enables investors to understand the benchmark the issuer must comply with, aiding in compliance assessment.
- Enhancing market transparency facilitates comparison of public float status across different issuers.
3.3 Do you agree with the proposal that the following types of issuers must disclose, in their monthly returns, the market value and percentage of the portion of the class of shares they have listed on the Exchange that are held by the public (as set out in paragraph 352(b) of the Conclusions and Further Consultation Paper):
(a) issuers relying on the Alternative Threshold; and
(b) PRC issuers with other listed shares (e.g. A+H issuers) relying on the market value limb of the relevant bespoke ongoing public float threshold?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The reasons are:
- Disclosing both market value and percentage provides more comprehensive data on shareholding status, enabling investors to fully assess the issuer's market liquidity.
- Reflecting the application of market value thresholds helps investors understand issuers' rationale for selecting the Alternative Threshold and its implications.
3.4 Do you agree with the proposal that all issuers also be required to disclose, in each of their annual reports, the relevant information proposed to be included in their monthly returns (see paragraph 352 of the Conclusions and Further Consultation Paper), as at the end of the relevant financial year?
Please give reasons for your views and any alternative suggestions.
Response: Our association is inclined to agree, but it is necessary to consider that excessive duplicate disclosure may reduce reading efficiency for annual report users.
3.5 Do you agree with the proposed disclosure obligations in relation to share capital structure information in annual reports for all issuers (as set out in paragraph 354 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association is inclined to disagree, the reasons are:
- Detailed requirements for share capital structure disclosure may require some issuers to incur higher costs for disclosure preparation.
- Disclosure of complex equity arrangements without standardization may prevent investors from gaining clear understanding.
Question 4
4.1 Do you agree that the additional obligations we propose to apply to issuers if their public float falls below the applicable Ongoing Public Float Threshold (as set out in paragraph 360 of the Conclusions and Further Consultation Paper) are sufficient to: (a) enable continued trading of the issuer’s shares (on the basis that the proposal would enable sufficient information to be provided to potential investors and existing shareholders); and (b) incentivise relevant issuers to restore their public float to meet the applicable Ongoing Public Float Threshold as soon as practicable?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The reasons are:
- Clearly defined restoration obligations and disclosure requirements prompt issuers and directors to prioritize addressing public float shortfalls.
- Continuous announcements and enhanced transparency enable the market and investors to make informed decisions, maintaining orderly trading.
- Encourages proactive cooperation between issuers and investors to minimize the duration of public float deficiencies.
4.2 Do you agree with the proposed disclosure requirement for the initial announcement to be made by an issuer with a public float shortfall within one business day of it becoming aware that there is a public float shortfall (as set out in paragraph 360(b) of the Conclusions and Further Consultation Paper), including the proposed requirement that the issuer must also announce its plan and expected timeline to restore to the applicable Ongoing Public Float Threshold, which can be announced in a subsequent announcement that must be published no later than 15 business days of it becoming aware that there is a public float shortfall?
Please give reasons for your views and any alternative suggestions.
Our association is inclined to agree, the reasons are:
- Prompt announcements prevent information asymmetry and strengthen market risk control.
- Disclosure of restoration plans and timelines enhances regulatory transparency and market expectation management.
However, considering that the one-business-day announcement obligation may lead to hasty disclosure, issuers may require additional time to assess the situation, understand the breach reasons known to the issuer and its directors, and formulate restoration plans and timelines, which could compromise announcement quality. Given that a public float shortfall (but not significantly insufficient) is not strictly price-sensitive information, our association suggests relaxing the preliminary announcement requirement to within three business days for more appropriate implementation.
4.3 Do you agree that if an issuer’s public float falls below the applicable Ongoing Public Float Threshold, it must provide monthly updates, by way of announcement, to notify the market of the status of its public float and updates on its restoration plan (as set out in paragraph 360(c) of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The reasons are:
- Maintaining continuous information updates prevents market misjudgment of the situation.
- Demonstrates the issuer's proactive approach, enhancing investor confidence.
4.4 Do you agree that, for so long as an issuer does not comply with the applicable Ongoing Public Float Threshold, the issuer itself, and each of its directors, must not (and each director must use his best endeavours to ensure that his close associates do not) take any action that may further lower the issuer’s public float percentage, unless the circumstances are exceptional (as set out in paragraph 360(d) of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The supporting reasons are:
- Prevents deterioration of public float shortfall situations, safeguarding market stability.
- Emphasizes directors' responsibilities, enhancing internal risk management awareness.
4.5 Do you agree that shares of issuers with a public float below the applicable Ongoing Public Float Threshold can be traded without a special stock marker, as long as such public float shortfall does not constitute a Significant Public Float Shortfall (as set out in paragraph 363 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The supporting reasons are:
- Avoids unnecessary market disruption and stigmatization from markers, maintaining normal liquidity.
- The market has sufficient time and space to remedy the shortfall situation.
4.6 Do you agree that, instead of suspension, issuers with a Significant Public Float Shortfall should be identified with a special stock marker and subject to heightened disclosure requirements and a delisting mechanism (as set out in paragraphs 361 to 369 of the Conclusions and Further Consultation Paper), such that there can be continued trading in the issuer’s shares?
Please give reasons for your views and any alternative suggestions.
Our association agrees with the proposal. The supporting reasons are:
- Suspension may hinder share circulation and investor exit, while eliminating suspension promotes liquidity.
- Adding special stock markers and strict disclosure clearly conveys risk signals and increases market vigilance.
- Clear delisting mechanism enhances regulatory effectiveness, preventing long-term public float shortfall situations.
4.7 If your answer to Question 4.6 is “yes”, do you agree with:
(a) the proposed Significant Public Float Shortfall thresholds (as set out in paragraphs 364 to 366 of the Conclusions and Further Consultation Paper);
(b) the proposed delisting mechanism for issuers with a Significant Public Float Shortfall (as set out in paragraph 368 of the Conclusions and Further Consultation Paper);
(c) the proposed additional disclosure obligations for issuers with a special stock marker (as set out in paragraph 369 of the Conclusions and Further Consultation Paper); and
(d) the proposed conditions for removal of the special stock marker (as set out in paragraph 370 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees.
Question 5
Do you agree that the proposed ongoing public float requirements be applied to all existing listed issuers?
Please give reasons for your views and any alternative suggestions.
Our association agrees.
Question 6
6.1 Do you agree with our proposal to retain the current practice of granting a timing-relief waiver to an issuer from the ongoing public float requirement for a reasonable period after a general offer to restore the public float (as set out in paragraph 391 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees.
6.2 If your answer to Question 6.1 is “yes”, do you agree that such a timing-relief waiver from the ongoing public float requirement should not be granted to the issuer if the public float shortfall upon completion of the general offer is considered as a Significant Public Float Shortfall (as set out in paragraph 391 of the Conclusions and Further Consultation Paper)?
Please give reasons for your views and any alternative suggestions.
Our association agrees.
The Association generally agrees with many of the proposals in the consultation paper, including the introduction of alternative and bespoke thresholds, the use of volume-weighted average price to determine market capitalisation, strengthened disclosure and remediation mechanisms, and the implementation of orderly transitional arrangements for existing listed issuers. At the same time, the Association recommends retaining reasonable operational flexibility in the implementation details (such as grace periods for announcement deadlines) to balance information transparency with practical feasibility. The Association urges HKEX to take into account the views of all stakeholders and to strike an appropriate balance between market stability and investor protection when finalising the rules.
Should you have any inquiries regarding this letter, please feel free to contact me (Phone: / Email: ) or Mr. HOW Sze Ming Kenny, Council Member (Phone: / Email: ).
Your sincerely,
[Signature and Chop]
Mofiz Chan
Chairman
Hong Kong Securities & Futures Professionals Association