BACKGROUND
To enhance the attractiveness and competitiveness of the listing mechanism for existing and prospective issuers, The Stock Exchange of Hong Kong Limited ("HKEx") published a consultation paper, “Proposals to Optimise IPO Price Discovery and Open Market Requirements”, on 19 December 2024 (“Consultation”). On 1 August 2025, the HKEX published the conclusions to the Consultation (“Consultation Conclusions”) setting out the major changes to the Listing Rules to reflect the Consultation Conclusions. The revised Listing Rules have become effective on 4 August 2025. The revisions are applicable to all issuers and new applicants with listing documents published on or after that date.
Furthermore, the Consultation Conclusions also included further consultation on the ongoing public float requirements.
SUMMARY OF THE KEY CHANGES
- Tiered initial public float thresholds
Before the amendments, the initial public float thresholds were:
| Expected market capitalisation at the time of listing | Minimum public float as a percentage of the issuer’s total number of issued shares (excluding treasury shares) |
|---|---|
| ≤HK$10 billion | 25% |
|
>HK$10 billion |
The HKEx may accept a lower percentage of 15% to 25% at its discretion. |
For a PRC issuer or an issuer with other share classes listed overseas, the total securities of that issuer in public hands on all regulated markets at the time of listing must be at least 25% of the issuer’s total number of issued shares (excluding treasury shares).
Under the previous thresholds, some mega cap applications have applied for waivers to have an initial public float of below 15% since 15% may still represent an extremely large number of shares in public hands; the previous thresholds also resulted in unfairness in some marginal cases. Therefore, to provide greater regulatory certainty to listing applicants, the HKEx introduced tiered initial public float thresholds:
| Tier | Expected market value of the relevant class of securities at the time of listing | Minimum percentage of such class of securities to be held in public hands at the time of listing |
|---|---|---|
| A | ≤HK$6 billion | 25% |
| B | >HK$6 billion to ≤HK$30 billion | The higher of: (i) the percentage that would result in the expected market value of such securities in public hands to be HK$1.5 billion at the time of listing; and (ii) 15% |
| C | >HK$30 billion | The higher of: (i) the percentage that would result in the expected market value of such securities in public hands to be HK$4.5 billion at the time of listing; and (ii) 10% |
The tiered initial public float thresholds will apply to any class of securities new to listing on the HKEx, except for PRC issuers with other listed shares (e.g. A+H issuers). The HKEx will reserve the discretion to grant case-by-case waivers to new applicants from strict compliance with the above where the expected market value of the relevant class of securities significantly exceeds HK$45 billion at the time of listing.
For a new applicant that is a PRC issuer with other listed shares, the H shares for which listing is sought must, at the time of listing, either: (i) represent at least 10% of the total number of shares in the class to which H shares belong (excluding treasury shares); or (ii) have an expected market value of at least HK$3 billion.
- New initial free float requirements
Upon listing, some of an issuer’s shareholders may be subject to disposal restrictions such as lock-up restrictions on cornerstone investors. Previously, there is no requirement for issuers to ensure that a minimum pool of shares, i.e. free float, is free from these disposal restrictions.
To minimise potential risk of share price manipulation, the HKEx adopts the following initial free float requirements:
- For new listing applicants: Required to ensure that the free float in public hands either (a) represents at least 10% of the number of shares in the relevant class for which listing is sought, with an expected market value of at least HK$50 million; or has an expected market value of at least HK$600 million at the time of listing.
- For PRC issuers with no other listed shares: Required to ensure that their H shares in public hands and not subject to any disposal restrictions, at the time of listing, either (a) represent at least 10% of the total number of issued shares in the class to which H shares belong, with an expected market value of at least HK$50 million; or (b) have an expected market value of at least HK$600 million at the time of listing.
- PRC issuers with other listed shares (e.g. A+H issuers): Required to ensure that their H shares in public hands and not subject to any disposal restrictions, at the time of listing, either (a) represent at least 5% of the total number of issued shares in the class to which H shares belong, with an expected market value of at least HK$50 million; or (b) have an expected market value of at least HK$600 million at the time of listing.
- “Ring-fencing” the bookbuilding placing tranche
Previously, there is no minimum, or cap, on the number of shares allocated to the bookbuilding placing tranche in an IPO. Now, as bookbuilding placees are key “price setters” in an IPO and the HKEx wishes to optimise IPO price discovery, an issuer is required to allocate at least 40% of the shares initially on offer be allocated to the bookbuilding placing tranche in each IPO.
- Allocation to the public subscription tranche
Previously, the minimum allocation of shares to be allocated to the public subscription tranche is as follows:
|
|
Initial allocation |
Demand for shares in the public subscription tranche in number of times (x) the initial allocation |
||
|
≥15x to <50x |
≥50x to <100x |
≥100x |
||
|
Minimum percentage of offer shares allocated to the public subscription tranche |
10% |
30% |
40% |
50% |
Now, to bring a better balance between the placing tranche and the public subscription tranche in the IPO allocation process to optimise price discovery, the HKEx will provide two mechanisms, Mechanism A and Mechanism B, for new applicants to choose from.
Mechanism A
An applicant is required to follow the initial allocation below:
|
|
Initial allocation |
Demand for shares in the public subscription tranche in number of times (x) the initial allocation |
||
|
≥15x to <50x |
≥50x to <100x |
≥100x |
||
|
Modified percentage of offer shares allocated to the public subscription tranche |
5% |
15% |
25% |
35% |
Mechanism B
An applicant is required to allocate a minimum initial allocation of 10% (and a maximum allocation of 60%) of its offer shares to the public subscription tranche. There is no clawback mechanism.
The HKEx will retain the discretion to grant case-by-case waivers to new applicants with a significant offer size from the prescribed allocation percentages under Mechanism A or Mechanism B.
OTHER POINTS TO NOTE
Some of the proposals that had attracted market attention did not proceed, particularly:
Regulatory lock-up on cornerstone investment
Currently, IPO shares placed to cornerstone investors are required to be locked up for six months after listing. The HKEx originally considered allowing a staggered lock-up release arrangement for these shares under which 50% of the shares placed will be released three months after listing and the remaining shares be released six months after listing. After considering market views, however, it decided to retain the current requirement.
Pricing Flexibility Mechanism
The HKEx originally proposed to allow issuers to set the final IPO price up to 10% above the indicative offer price or the top of the offer price range after prospectus publication. However, the HKEx decided not to adopt its proposal having considered concerns raised by respondents.
FURTHER CONSULTATION
In the Consultation, the HKEx requested suggestions on the appropriate ongoing public float requirements considering the potential changes to the initial public float thresholds. Considering respondents’ feedback, the HKEx has developed the proposals and invited the public to give comments before 1 October 2025, the main ones include:
- Initial prescribed threshold: The ongoing public float thresholds will be amended so that a portion of the listed class of shares in public hands must, at all times, represent at least: (a) 25% of the total number of issued shares in that class (excluding treasury shares); or (b) any lower public float percentage prescribed at the time of its initial listing. This also applies to PRC issuers with no other listed shares.
- Alternative threshold: In addition to the initial prescribed threshold, the HKEx proposed an alternative ongoing public float threshold whereby a portion of the listed class of shares in public hands must, at all times: (a) have a market value of at least HK$1 billion; and (b) represent at least 10% of the issuers’ total number of issued shares in that class (excluding treasury shares). The HKEx expects this alternative threshold will mainly be relevant for issuers with a market capitalisation of more than HK$4 billion. This also applies to PRC issuers with no other listed shares.
- Bespoke threshold for PRC issuers with other listed shares (e.g. A+H issuers): The HKEx proposed that these issuers’ HK-listed H shares in public hands must, at all times: (a) have a market value of at least HK$1 billion; or (b) represent at least 5% of the total number of shares in the class to which H shares belong (excluding treasury shares).
- Regular public float reporting: The HKEx proposed that all issuers should be required to confirm whether they have met their public float thresholds in their monthly returns and annual reports. They should also be required to disclose their share capital structures in their annual reports.
- Public float shortfalls: When there is a breach of the ongoing public float requirements, apart from restoring the percentage and publishing an initial announcement of the breach, the HKEx further proposed that an issuer should provide monthly updates on the status of its public float and restoration plan, and must not take actions that may further reduce its public float. Furthermore, the HKEx proposed not to suspend trading solely due to a public float shortfall; instead, it proposed to identify an issuer that breaches the requirements with a special stock marker. These issuers will be subject to additional disclosure obligations and would be delisted if they fail to restore the public float within a certain period.
Transitional arrangements considering the current updated initial public float requirements
New applicants listed on the HKEx with listing documents published on or after 4 August 2025 under the new initial public float requirements must maintain the relevant minimum public float percentage prescribed at the time of their listing, at all times, until the implementation of any new ongoing public float requirements. If an issuer’s public float percentage falls below the prescribed minimum threshold, the HKEx reserves the right to suspend trading of an issuer's shares until appropriate steps have been taken to restore the minimum percentage.
WHAT TO LOOK OUT FOR:
- The revised Listing Rules came into effect on 4 August 2025. The revisions are applicable to all issuers and new applicants with listing documents published on or after that date.
- The HKEx also updated its Guidance Materials for Listed Issuers and Guide for New Listing Applicants to reflect consequential amendments after the implementation of the proposals and related amendments set out in the Consultation Conclusions.
- Public comments on the HKEx’s further consultation in relation to the ongoing public float requirements will close on 1 October 2025.
For further details, please refer to the Consultation Conclusions published on the HKEx’s website (https://www.hkex.com.hk/News/Market-Consultations/2016-to-Present/December-2024-Optimise-IPO-Price?sc_lang=en).
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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact [email protected] if you have any questions about the article.