SFC Consults on Proposed Conduct Requirements for Bookbuilding and Placing Activities
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On 8 February 2021, The Securities and Futures Commission (SFC) published a consultation paper on (i) the proposed code of conduct on bookbuilding and placing activities in equity capital market (ECM) and debt capital market (DCM) transactions (Proposed Code) and (ii) the “sponsor coupling” proposal (together, the Proposals).
There are currently no specific requirements governing the conduct of bookbuilding or placing activities in Hong Kong by intermediaries in either ECM or DCM.
The Proposals were formulated based on recent reports issued by the International Organization of Securities Commissions (IOSCO) to address conflicts of interest and associated conduct risks in equity and debt capital raisings, as well as on the SFC’s observations from a thematic review of selected licensed corporations involved in these activities which identified substandard practices and control deficiencies in various areas, including bookbuilding and allocation.
Consultation will end on 7 May 2021.
Overview of the Proposals
The Proposed Code sets out the obligations and standards of conduct expected of intermediaries conducting bookbuilding and placing activities in Hong Kong (such intermediaries being defined as “capital market intermediaries” (CMIs) under the Proposed Code). Syndicate CMIs which conduct activities such as the overall management of an offering, coordination of bookbuilding or placing activities conducted by other CMIs, exercising control over bookbuilding activities and making allocation recommendations to the issuer are defined as “overall coordinators” (OCs) under the Proposed Code, and they would be subject to additional conduct requirements.
The Proposed Code would cover:
The Proposed Code would not however cover bilateral agreements or arrangements between the issuer and the investors (club deals), transactions which involve one or several investors with pre-agreed terms of the offering and transactions where shares or debt securities are allocated to investors on a pre-determined basis.
The SFC also proposes “sponsor coupling” which, in broad terms, would require that for IPOs at least one OC, which is either within the same legal entity or the same group of companies, also acts as a sponsor.
The Proposed Code would be set out in a new paragraph 21 in the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct). The “sponsor coupling” proposal would be reflected as an amendment to paragraph 17 of the Code of Conduct.
Salient points of the Proposals
Some of the salient points of the Proposals are summarised below:
Early formal appointment of CMIs and OCs
Assessment of the issuer and the offering
Assessment of investor clients
Rebate and preferential treatment
Allocation, order placement and order book management
Disclosure of IPO fee arrangements to the SFC
Four clear business days prior to the Listing Committee hearing:
No later than listing:
Within two weeks after the first day of dealings:
Advice to the issuer
Separately, in light of the introduction of the Proposed Code and to avoid duplicating requirements, the SFC proposes to make consequential changes to the guideline to sponsors, underwriters and placing agents involved in the listing and placing of GEM stocks issued in January 2017.
To facilitate the implementation of the Proposed Code, subject to the responses to this consultation, the SFC and SEHK will work together to implement changes to the Listing Rules.
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