CODE OF CONDUCT
Only licensed or registered persons may engage in regulated activities in Hong Kong, which include sponsoring IPOs and bookbuilding/placing in a share or debt offering. In conducting such activities, they must comply with the revised Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
CAUSE FOR CONCERN
While syndicate members in Hong Kong IPOs are given more leadership titles, responsibilities over key activities become less defined among the many leaders.
Also, the SFC notes increasing concern over the behaviour of intermediaries engaged in IPOs not in line with maintaining a healthy capital market, or possible conflicts of interest. For example, firms marketing the offering to investors without a mandate from the issuer, and subsequently convincing the issuer to accept them as syndicate members.
In this case, the issuer provides fee incentives at a late stage, further bringing about last-minute scrambles for orders and fees. Syndicate leaders thus have much less control over the whole bookbuilding and share allocation exercise at the last critical phase of the IPO.
For IPO sponsorship, the SFC also notices that fees are currently not aligned with sponsors’ costs and responsibilities. Based on its analysis of 99 IPOs listed from January to September 2020, the average sponsor fee was HKD6.3 million (USD804,000) and the average underwriting fixed fee was HKD43.9 million. This causes concerns over sufficient effort by sponsors in conducting due diligence on the issuers.