IFR Asia – February 10, 2018

Singapore,

Malaysia to renew

trading link

Singapore and Malaysia plan to establish a

trading link between their stock markets,

16 months after shuttering a similar,

though less comprehensive, scheme

involving Thailand’s bourse.

The Monetary Authority of Singapore

and the Securities Commission Malaysia

announced plans last week to allow

investors in Singapore and Malaysia to

trade shares on each other’s exchanges.

Singapore Exchange and Bursa Malaysia

said they would collaborate on post-trade

arrangements, including clearing and

settlement. Meanwhile, MAS and SC said

they would set up cross-border supervisory

and enforcement arrangements.

The renewed collaboration between the

stock markets in Singapore and Malaysia

follows the ultimately unsuccessful ASEAN

Trading Link, launched in 2012. SGX

and BM were founding members of that

initiative, before the Stock Exchange of

Thailand joined later the same year.

That scheme was designed to include

the bourses in Indonesia, Vietnam and the

Philippines eventually as part of efforts to

improve integration between South-East

Asia’s capital markets.

However, trading volumes failed to pick

up, and SGX announced last year that the

scheme would be abandoned, without

giving a reason.

Under that scheme, US software

company SunGard set up an order system

that allowed all three exchanges to receive

live price feeds from one another.

However, brokers still had to rely on

their counterparts in other markets to

execute trades and deal with the clearing

and settlement. So, the link was not seen as

an improvement on the status quo.

The latest efforts from Singapore and

Malaysia to establish a trading link promise

to address these issues.

“The two countries have made it clear

that they will collaborate on post-trade

arrangements. It will be an end-to-end

connect scheme, but it is still early days to

know what model they will use,” said Alvin

Goh, head of securities services for the

People

&Markets

Hong Kong loosens IPO pricing rules

Bankers welcome plan to allow below-range pricing

Bankers in Hong Kong have welcomed the

local bourse’s plan to let issuers price IPO

shares below the indicative range, saying

THATûTHEûADDITIONALûmEXIBILITYûWILLûHELPûINû

challenging market conditions.

In a February 2 guidance letter, the Stock

Exchange of Hong Kong, a subsidiary of

Hong Kong Exchanges and Clearing, allows

issuers to price shares as much as 10%

BELOWûTHEûlXEDûINDICATIVEûOFFERûPRICEûORûTHEû

bottom end of the indicative price range,

subject to certain conditions.

Under the previous system, any issuer

wanting to price an IPO below the range

had to issue a supplemental prospectus

ANDûASKûINVESTORSûTOûRECONlRMûTHEIRûORDERSû

referred to as the withdrawal mechanism.

“I can’t think of a single deal I’ve worked

on where the withdrawal mechanism

has been used,” said the head of equity

capital markets at one major bank. “The

timing required means that you have

no option but to pull the deal and wait

for a more favourable time to relaunch.

I’ve been saying for quite some time that

the exchange needs to look at this. It is

important as sometimes the market can

move against you unexpectedly.”

Bankers said the withdrawal mechanism

WASûlRSTûUSEDûINûûATûTHEûHEIGHTûOFû

THEûlNANCIALûCRISISûWHENûSHOPPINGûMALLû

operator Renhe Commercial priced its

IPO at HK$1.13 (US$0.14), below the

indicated range of HK$1.40–$1.71, to raise

HK$3.39bn.

The new pricing mechanism applies only

if the span between the top and the low

ends of the indicative price range does not

exceed 30%.

Issuers must also disclose in the

prospectus that they are using the new

PRICINGûMECHANISMûINûORDERûTOûBENElTûFROMû

it.

SEHK has not listed any restrictions on

THEûTYPESûOFûISSUERSûABLEûTOûBENElTûFROMûTHEû

new guidelines.

The changes are effective immediately

on a pilot basis and will be reviewed by the

listing committee after 12 months.

US RIVALRY

The reform brings Hong Kong closer to

other jurisdictions, most notably the US,

which allows issuers to both upsize or

downsize IPOs provided the changes do not

exceed 20% of the maximum offering price

initially stated.

In the last few years, the US Securities

and Exchange Commission’s rules have

MAINLYûBENElTEDûTECHNOLOGYûCOMPANIESû

which have taken advantage of investor

appetite to price above the range.

When Facebook listed in 2012,

overwhelming retail demand allowed the

tech giant to increase the price range from

53nûTOû53nûBEFOREûPRICINGûATû

the top end of the new range.

Hong Kong has, in the last year, seen a

mURRYûOFûTECHû)0/SûWHICHûHAVEûATTRACTEDû

huge demand from investors. Last

November, Chinese online car retailer Yixin

raised HK$6.77bn after selling shares at the

top end of the indicative price range.

Tencent Holdings’ online publisher,

China Literature, also priced at the top

ENDûOFûTHEû(+nûINDICATIVEûRANGEû

INûTHEûSAMEûMONTHûRAISINGû(+BNû

In September, Chinese online insurer

ZhongAn Online P&C Insurance also priced

at the top to raise HK$11.9bn.

12 International Financing Review Asia February 10 2018

TOP STORY REGULATION

“I can’t think of a single deal

I’ve worked on where the

withdrawal mechanism has

been used. The timing required

means that you have no option

but to pull the deal and wait

for a more favourable time to

relaunch.”