Hong Kong Bourse Seeks Feedback on IPO Price Discovery, Takes Steps to Boost Capital Markets Activity

Hong Kong Exchanges and Clearing (HKEX), which manages one of the world’s largest stock markets by market capitalization, has launched a consultation designed to make the city’s bourse more attractive to would-be listers while unveiling new measures to enhance corporate governance.

Last Thursday, HKEX launched a consultation to optimize the city’s regulatory framework for initial public offerings (IPOs). HKEX hopes the consultation will make Hong Kong’s securities market more competitive and encourage more firms to list there.

Among the key proposals are optimizing the price discovery process by increasing the participation of “price-setting” investors in the IPO process. This would minimize the discrepancies between the final offer price and the actual trading price once shares begin to trade.

“These proposed enhancements to the IPO pricing mechanism are designed to support high-quality companies from around the world in thriving within Hong Kong’s vibrant capital market,” HKEX head of listing Katherine Ng told Law.com International.

HKEX also plans to ensure that issuers will have sufficient shares in public hands at the time of listing. This includes relaxing certain percentage thresholds, depending on the size of the company, needed to float on the stock exchange.

Meanwhile, HKEX announced changes last Thursday to its corporate governance rules to encourage more transparency among listing firms while taking the lead in modernizing standards in the region.

The new requirements will take effect on July 1, 2025.

Each independent non-executive director (INED) will now only be allowed to sit on six boards, with a grace period up to 2028. The lead INED designation will become voluntary, accompanied by improved disclosures on shareholder engagement.

First-time directors are now required to complete a minimum of 24 hours of training within their first 18 months, reduced to 12 hours for those with prior experience in other exchanges.

Nomination committees must include directors of different genders, and boards are required to conduct annual reviews of their diversity policies.

Issuers will be mandated to carry out annual reviews of their risk management practices, with enhanced disclosures of their findings. Companies must also provide clearer disclosures regarding their dividend policies and decisions.

“These enhancements will bring diverse perspectives to the boardroom, strengthening overall board effectiveness and independence,” said Ng.

According to a recent Deloitte report on mainland China and Hong Kong capital markets, Hong Kong is expected to have recorded 69 IPOs raising approximately $12.3 billion by the end of 2024. This represents a 1% drop in volume of IPOs but an 89% increase in proceeds from the year before.

The collective value, which saw Hong Kong reclaim its position as one of the top five IPO venues globally, includes a jumbo listing by home appliance company Midea Group in October.

Majority of the Hong Kong IPOs this year remain to be small to mid-cap transactions, which saw Chinese law firms dominate the market by volume of listings. Big Law players such as Skadden, Arps, Slate, Meagher & Flom, Kirkland & Ellis, Dechert and Linklaters all had to cut their head counts in their corporate and capital markets teams in the city this year.

According to Deloitte, the Hong Kong IPO market started to pick up in September and with U.S. Fed cuts to its interest rates and China economic stimuli, the bourses “momentum is expected to pick up further in 2025 .”