Following strong market support for its concept paper, the Hong Kong Stock Exchange will proceed with proposals to introduce a new digital platform, FINI (Fast Interface for New Issuance), to manage the IPO settlement process. With the modernised infrastructure and streamlined, digitised process through FINI, the IPO settlement timetable will be shortened from the current T+5 IPO settlement cycle to T+2. This will reduce market risk for Hong Kong’s IPOs and bring Hong Kong in line with other leading international equity listing venues.
The Stock Exchange is also proceeding with modified proposals for public offer pre-funding arrangements aimed at reducing the amount and time that application monies for public offer shares are locked up. It is also introducing a mandatory standard for investor ID information for Hong Kong IPOs to improve market quality, consistency and fairness by enabling multiple applications to be detected.
FINI is expected to launch in the fourth quarter of 2022 at the earliest, allowing time for the market to get prepared.
What is FINI?
FINI will provide a single, user-friendly software platform for carrying out the various steps in the IPO settlement process. Market participants (IPO sponsors, lawyers, share registrars, lead brokers and distributors, CCASS participants and designated EIPO banks of CCASS participants) will submit and retrieve information and coordinate workflows during the settlement process, from offer initiation, subscription, pricing, allotment, payment, regulatory approval and the stock admission process. The Stock Exchange and SFC will oversee the settlement process via the platform, clearing placee lists and allotment results and providing the required acknowledgements and approvals.
Whilst its scope may be expanded to cover follow on offerings and debt offerings, it will initially be used for the settlement of new equity listings, including primary and dual primary listings, secondary listings, reverse takeovers, listings by introduction and transfers from GEM to the Main Board.
Impact on the IPO settlement cycle
Once FINI is introduced, the IPO settlement cycle will become T+2. The original concept paper proposed a T+1 IPO settlement timetable. However, the Stock Exchange took on board market feedback that this may be operationally challenging, particularly where there are investors based overseas, and extended the settlement timetable by one day. Where a longer settlement period is required and justified (for example due to the timing of public holidays), the Stock Exchange’s advance consent will be required.
Where a timetable is delayed, the Stock Exchange should be consulted at the earliest opportunity. The Stock Exchange will issue further guidance on how delays requiring a supplemental announcement or prospectus will be handled under the FINI system.
Facilitation of placee list submission
Whilst the regulatory requirement for submitting placee lists will remain unchanged, FINI will digitalise the placee list submission and review process. The format of placee lists will still be in excel, but will be adjusted to permit tags (such as for connected clients and connected person) and to align the investor identification data format for individual and corporate placees with those in the public tranche for consistency.
The FINI system will facilitate the placee submission process by tracking and flagging missing or incomplete information and duplicate entries. The system will also generate marketing statements and independence letters for distributors based on the submitted placee lists and will generate a bilingual allotment results data table once the placee allocations have been cleared.
Pre-vetting of placings to connected clients will still be possible under FINI but will be carried out outside of the FINI system.
In the future, the Stock Exchange may look at the possibility of integrating FINI with electronic bookbuilding systems or adding functionality to support straight-through placee submission. These initiatives depend on market support and further stakeholder engagement.
Standardised investor ID information
The Stock Exchange is to introduce a mandatory standard for investor ID information, specifying the information required for both individual and corporate subscribers in either the public offer or international offer tranches.
The Stock Exchange intends to align the requirements with the proposed investor ID regime at the trading level for the securities market in Hong Kong as proposed by the Securities and Futures Commission. Subject to further regulatory consideration, where confidentiality concerns arise, intermediaries may be permitted to identify public offer subscribers with a Broker-to-Client Assigned Number.
Public offer pre-funding mechanism
The pre-funding mechanism will change once FINI is implemented. Before the ballot, HKSCC clearing participants will be required to hold clients’ application monies with their settlement banks as evidence of sufficiency of funding, rather than having to transfer the subscription amounts to the issuer’s receiving bank as is currently required. FINI will also address the issue of excessive liquidity lock-up in heavily oversubscribed IPOs, by allowing clearing participants to opt in for a compressed pre-funding requirement in certain circumstances, which will release significant amounts of liquid funds that would otherwise be locked up during the IPO subscription period.
As noted above, it will be the fourth quarter of 2022 at the earliest before FINI is officially introduced. The new system will be subject to pilot testing followed by market-wide testing and a market rehearsal before its launch. The Stock Exchange is planning an extensive education programme, with a FINI information pack and user guide to assist the market. Platform users will need to be on-boarded and will need to agree to FINI terms and conditions. The Listing Rules, General Rules of CCASS and CCASS Operational Procedures will also need to be amended to reflect the mandatory use of FINI and to accommodate the shortened IPO settlement cycle.
The Stock Exchange has a dedicated webpage where all materials relating to FINI can be found, including the concept paper, conclusions paper and current draft of the information pack containing frequently asked questions.