Xu Zhengyu: When the Hong Kong Stock Exchange implements the optimization of new stock pricing and allocation mechanisms, it has considered the needs of different investors.

On May 13, Hong Kong's Financial Services and the Treasury Bureau Director Christopher Hui responded to questions from lawmakers, stating that the Hong Kong Stock Exchange has considered the needs of different investors, including retail investors, when implementing the optimized new stock pricing and allocation mechanism. The new mechanism aims to ensure that investors with pricing power can meaningfully participate in initial public offerings, and to maintain a reasonable balance between retail investors' participation, ensuring that a certain portion of the book-building process can optimize price discovery and benefit all investors participating in initial public offerings. He mentioned that the participation of institutional investors helps in more stable price discovery, and noted that major markets globally generally adopt the book-building mechanism for IPOs, with public offer being limited. The Hong Kong government will continue to closely monitor the implementation of new regulations, the effectiveness of pricing and allocation mechanisms, and keep an eye on international market trends and local market needs to ensure the healthy development of the local market. Regarding the accounting treatment of new share subscriptions and the calculation of quick assets, Christopher Hui stated that the government has coordinated with the Hong Kong Securities and Futures Commission, the Hong Kong Institute of Certified Public Accountants, and the securities industry to actively communicate and understand the arrangements for brokerages in relation to new share subscription business processes, fund preparation, and financial calculations. In terms of listing applications, the sponsor's main role is to ensure that the applicant complies with the Listing Rules and other relevant laws and regulations, and that the listing documents provide sufficient details and information for investors to have a full understanding of the applicant's business, financial condition, profitability, and related risks. The sponsor's oversight role in the listing process is crucial for maintaining the quality of the Hong Kong market and investor confidence in the new stock market. Hong Kong legislation requires only licensed corporations with a license allowing them to conduct regulated activities of Type 6 (providing advice on corporate finance) and meeting the qualification criteria in the Sponsor Guidelines can act as sponsors for listings. To thoroughly understand the applicant for listing and ensure compliance with relevant regulatory requirements, sponsors should take reasonable due diligence steps in reviewing listing applications. Sponsors must consider the 17th paragraph of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Application Guidance for Listing Rule 21 when making due diligence enquiries. The Code of Conduct provides guidance that sponsors should make reasonable judgments on the nature and extent of due diligence based on all relevant facts and circumstances. The Exchange sets out its expectations for sponsors' general due diligence in the Application Guidance. However, since each listing applicant is a unique case, sponsors must independently assess the appropriate scope and extent of due diligence for individual cases. In fact, with the significant increase in new listing applications in 2025, the Hong Kong Securities and Futures Commission and Hong Kong Stock Exchange have noted a decrease in the quality of draft listing documents. Therefore, in December 2025, they issued a joint letter to relevant sponsors, highlighting issues they should pay attention to (including the quality of listing application documents and sponsors' resources). The Securities and Futures Commission followed up with a circular in January 2026, raising concerns about serious deficiencies in certain listing documents and subpar behavior by some sponsors. The Securities and Futures Commission is currently reviewing the documents and information submitted by sponsors in response to the circular and has conducted thematic inspections of sponsors. Christopher Hui mentioned that the Securities and Futures Commission and the Hong Kong Stock Exchange will continue to closely monitor the work of sponsors and the quality of listing applications, and take appropriate regulatory action when necessary to maintain Hong Kong's reputation as a leading international fundraising center.