SFC issues additional guidance on IPO subscription and financing services
The Securities and Futures Commission (SFC) today issued additional guidance in a circular for licensed corporations (LCs) on IPO subscription and financing services to enhance their risk management practices and protect investors from undue financial risks.
This came after the SFC identified deficiencies in a recently-completed review of the IPO financing activities of selected LCs. In particular, some of the LCs were found to have engaged in imprudent and aggressive IPO financing practices by accepting subscription orders that exceed their clients’ financial capabilities.
In some cases, the LCs primarily focused on the subscription levels or anticipated subscription rates of IPO stocks rather than the financial positions of clients, which could result in over-leveraging for clients and subject LCs themselves to an increased client default risk.
The additional guidance in the circular sets out the SFC's expected standards of conduct and control measures for LCs. These include the collection of minimum upfront subscription deposits, financial assessments of both the firm and its clients, proper segregation of clients' subscription deposits, and adherence to the FINI investor identification requirements (Note 1).
“It is of utmost importance to ensure that both licensed corporations and investors are effectively managing their risks when participating in IPO subscription activities,” said Dr Eric Yip, the SFC's Executive Director of Intermediaries. “This circular aims to provide clear guidance on the SFC's expected conduct, thus promoting continuous healthy growth of our capital markets,” he added.
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Note:
1.FINI refers to the Fast Interface for New Issuance platform launched by Hong Kong Securities Clearing Company for Hong Kong's IPO settlement process in November 2023.
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