IPO allotment rule changes make market healthier as a whole
New rules now in place mean allotment chances for retail investors will get even smaller, especially with popular IPOs. Market insiders and experts, however, argue that this is not necessarily a bad development. Bigger chunks for institutional investors will mean more stable prices, less volatility and higher liquidity for new stocks.
From August 4, IPO candidates have had to allocate at least 40 per cent of the shares to institutional investors, including family offices. That is up from no guaranteed allocation previously. The rules reduce the IPO shares that retail investors can get from the so-called clawback mechanism to 35 per cent, down from 50 per cent previously in the event of a heavily oversubscribed offer.
The IPO company may also not offer a clawback, in which case no more than 10 per cent is required to be allotted to retail investors. The new formula translates to a 50 per cent cap on IPOs for cornerstone investors, who face a six-month lock-up period.
Institutional investors will enjoy more certainty in getting shares at a time when the IPO market in Hong Kong is hot again, having catapulted the city back to the global No 1 ranking. IPOs of 42 firms
raised US$13.5 billion in the first half of this year. The full year could reach HK$250 billion (US$32 billion), according to KPMG.
Many retail investors offload their hot shares at debut to make a quick buck. Institutional investors tend to hold shares longer and help with price discovery, as well as stabilising prices, but it also means fewer retail investors can partake in a debut rally.
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