Hong Kong’s market watchdog reviews 8 brokerages amid IPO oversubscription frenzy

SFC monitoring brokerages with respect to their risk management of margin financing for new stocks, CEO Julia Leung says

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The Securities and Futures Commission has launched a review of eight brokerages to examine their margin financing practices. Photo: Yik Yeung-man

Published: 7:27pm, 14 Feb 2025

Hong Kong’s market watchdog has launched a review of eight brokerages to examine their margin financing practices after witnessing heavy oversubscriptions for some initial public offerings (IPOs).

The Securities and Futures Commission (SFC) was closely monitoring whether these brokerages were careful with their risk management of margin financing for new stocks, CEO Julia Leung Fung-yee said on Friday. Margin financing refers to loans that brokerages offer clients to buy stocks.

“We will examine the securities firms’ policies – whether they are sound, fully consider the customer’s repayment ability and set appropriate loan limits to prevent overfinancing,” she said.

The SFC did not name the brokers that were being monitored.

SFC CEO Julie Leung pictured in December 2022. She said individual investors should be careful in gauging demand for new shares from the oversubscription multiple alone. Photo: May Tse

In November 2023, the SFC sent a circular to licensed companies saying they needed to prudently manage their risks when providing IPO subscription services and financing following changes introduced by the Fast Interface for New Issuance (FINI) platform.

The FINI platform allows brokers to prepay for only the maximum number of shares that can be allotted in a public offering, instead of locking in funds for the entire excess amount. Some brokers offer zero-interest margin financing loans to attract customers.