HONG KONG: HKEX Seeks Public Comments on Proposal to Modernise Hong Kong IPO Settlement Process

Monday November 16 2020

On 16^th November 2020, Hong Kong Exchanges and Clearing Limited (HKEX) published a Concept Paper seeking market feedback on its proposal to comprehensively modernise and digitalise Hong Kong’s IPO settlement process.

Under the proposal, HKEX will introduce a new web-based service called Fast Interface for New Issuance (FINI) that enables IPO market participants, advisers and regulators to interact digitally and seamlessly on the many steps that comprise the end-to-end IPO settlement process.

By modernising both the logic and the infrastructure of the Hong Kong IPO settlement, HKEX expects that the introduction of FINI will shorten the time gap between IPO pricing and trading from its current average of more than five business days to as little as one business day: reducing the settlement timeframe by as much as 80 per cent. This will give investors quicker access to new listings, reduce market risk and improve efficiency for all parties involved.

Specifically, FINI will provide a single user-friendly platform that brokers, share registrars, IPO sponsors, lawyers, underwriters and distributors can use to share information and coordinate workflows during the offering initiation, subscription, pricing, allotment, payment, regulatory approval and stock admission processes – all steps that precede a newly listed company “striking the gong” to mark its trading debut.

In addition, HKEX’s Listing Division, wholly-owned subsidiary Hong Kong Securities Clearing Company (HKSCC), and the Securities and Futures Commission will use FINI to oversee the settlement process for each IPO as it happens, providing certain acknowledgements and approvals that may be required during the process directly via the new platform.

HKEX identified the shortening of Hong Kong’s IPO settlement process as a key initiative in its Strategic Plan 2019-21, as part of a broader range of market microstructure improvements. While Hong Kong’s primary market has evolved significantly in recent years, the logistics of how new shares start trading have not fundamentally changed in more than two decades.

If the proposed concept is supported by the market, HKEX will build FINI as the settlement mechanism for every Hong Kong IPO, fully replacing the existing “T+5” process. An on-boarding programme will be organised in due course, allowing market participants to prepare for a one-time transition to become FINI-ready.

The launch date of FINI will be subject to market support and readiness and is envisaged to take place no earlier than the second quarter of 2022.

The deadline for responding to the Concept Paper via the feedback form available at this link is 6:00 PM on Friday, 15^th January 2021.

Click on the above link for further information.