SFC issues new guidance on IPO subscription, financing services

This aims to enhance risk management practices and protect investors from financial risks.

The Securities and Futures Commission (SFC) issued additional guidance in a circular for licensed corporations (LCs) on IPO subscription and financing services. 

This aims to enhance risk management practices and protect investors from undue financial risks.

The additional guidance in the circular sets out the SFC’s expected standards of conduct and control measures for LCs.

These include the collection of minimum upfront subscription deposits, financial assessments of both the firm and its clients, proper segregation of clients’ subscription deposits, and adherence to identification requirements for investors in the Fast Interface for New Issuance platform.

The guidance follows an SFC review of IPO financing activities amongst selected LCs, which revealed various shortcomings.

In particular, some of the LCs were found to have engaged in imprudent and aggressive IPO financing practices by accepting subscription orders that exceeded their clients’ financial capabilities.

In some cases, the LCs primarily focused on the subscription levels or anticipated subscription rates of IPO stocks rather than the financial positions of clients. This could result in overleveraging for clients and subject LCs themselves to an increased client default risk.