On 8 February 2021, the Securities and Futures Commission (the “SFC”) published a consultation paper on conduct requirements for capital market transactions in Hong Kong. The proposed requirements would help clarify the roles played by intermediaries in equity and debt capital raisings and set out the standards of conduct expected of them in bookbuilding, pricing, allocation and placing activities.
The SFC proposes to introduce a new paragraph 21 to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “Code of Conduct”) on Bookbuilding and Placing Activities in Equity Capital Market and Debt Capital Market Transactions (the “Proposed Code”) which would apply to intermediaries conducting bookbuilding and placing activities in Hong Kong.
The SFC also formulated a proposal to combine the roles of a head of syndicate and a sponsor, including a proposed amendment to paragraph 17 of the Code of Conduct.
The key features of the Proposed Code include:
- defining the intermediaries involved in these activities as capital market intermediaries (“CMIs”) and further defining the overall coordinator (“OC”) as the head of syndicate by the activities it conducts (such as the overall management of an offering, coordination of bookbuilding or placing activities conducted by the syndicate and the provision of advice to the issuer);
- setting out the standards of conduct expected of CMIs, covering a wide spectrum of activities, including bookbuilding, allocation and placing, to address issues including inflated or opaque demand, preferential treatment and rebates, misleading “book messages”, proprietary orders which may negatively impact on the price discovery process and orders which conceal the identities of investors. Since OCs play a lead role and shoulder greater responsibility, they would be subject to additional conduct requirements, for example, in advising the issuer of pricing, allocation and marketing strategies; and
- requiring that syndicate membership and fee arrangements (including the fixed fees and fee payment schedule) be determined at an early stage and formal appointments of CMIs through written agreements specifying the roles and responsibilities and fee arrangements, to enhance accountability amongst syndicate CMIs and discourage undesirable behaviours.
The consultation will conclude on 7 May 2021. In addition to the incorporation of the Proposed Code to the Code of Conduct, Consequential amendments would also be made separately to (i) the Guideline to sponsors, underwriters and placing agents involved in the listing and placing of GEM stocks published in January 2017, (ii) the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“HKEx”) and (iii) the Rules Governing the Listing of Securities on GEM of HKEx.