Hong Kong’s Exchange Unveils Proposal to Speed Up IPO Process

(Bloomberg) -- Hong Kong’s stock exchange unveiled a proposal to shorten the time gap between initial public offerings pricing and trading to as little as one day, a move that will bring one of the world’s busiest listing venues in line with rival bourses.

Hong Kong Exchanges & Clearing Ltd. on Monday proposed an electronic platform called FINI (Fast Interface for New Issuance) that would allow IPO market participants, advisers and regulators to interact digitally, it said in a statement. The web-based service will shorten the time gap between pricing and trading to as little as one business day from the current average of five days, reducing market risk.

Hong Kong’s five-day settlement process has long been a bane for investors, bankers and the city’s policy makers. The Asian financial hub remains the only place among major developed global markets where IPO settlements take five days. In addition to exposing investors to market risk over an extended period of time, a longer settlement process ties up pledged capital and drains liquidity from the system, driving up short-term interest rates.

The issue came to the fore during Ant Group Co.’s mega listing, before it was abruptly suspended by Chinese regulators during the five-day settlement period. Investors clamoring for shares pushed up demand for the local dollar, forcing authorities to flood the banking system with unprecedented liquidity.

However cutting the settlement time has also faced skepticism from brokers and banks, who can make money by lending to investors during the period. Companies that are listing can also earn income off the pledged cash from retail investors.

The plan will also alter the pre-funding mechanism for IPOs by only collecting the actual share allotment value from each broker, which will ease the “distortive impact” of oversubscribed offers, the bourse said.

The bourse will seek comments on the proposal until Jan. 15, 2021, and envisages launching the new system no earlier than the second quarter of 2022.

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