Hong Kong Stock Exchange Optimises IPO Price Discovery and Open Market Requirements

In August 2025, The Stock Exchange of Hong Kong Limited (HKEX) published its Consultation Conclusions on proposals to optimise IPO price discovery and open market requirements, following a consultation paper issued in December 2024. The reforms aim to enhance market liquidity, transparency, and flexibility in IPO processes, while aligning Hong Kong's regulatory framework with international standards to bolster its competitiveness as a global listing hub. Most proposals were adopted with modifications based on market feedback, effective from 4 August 2025, applying to all issuers and new listing applicants with listing documents published on or after that date. HKEX has also launched a further consultation on ongoing public float proposals, with submissions due by 1 October 2025. This article outlines the key amendments and their implications for issuers, investors, and market participants.

Key Amendments to Initial Public Float Requirements

To address concerns over high initial public float thresholds potentially deterring large-scale listings, HKEX has introduced a tiered structure for initial public float requirements. This replaces the previous flat 25% threshold (or 15-25% for issuers with market capitalisation over HK$10 billion). The new thresholds are based on the expected market value of the relevant class of securities at listing and apply to any new class of equity securities, with certain exceptions for PRC issuers and bonus issuances.

The tiered thresholds are as follows:

HKEX retains discretion to grant waivers for issuers with expected market values significantly exceeding HK$45 billion. For PRC issuers with no other listed shares, the thresholds apply to H shares only in the numerator, but the denominator includes all shares in the class (whether listed or unlisted). For PRC issuers with other listed shares (e.g. A+H issuers), the public-held H shares must represent at least 10% of the total issued shares in the class or have an expected market value of at least HK$3 billion.

Additionally, the definition of "the public" has been refined to exclude:

• Persons whose acquisition of securities was financed directly or indirectly by the issuer, its subsidiaries, or core connected persons; or
• Persons accustomed to taking instructions from the issuer, its subsidiaries, or core connected persons regarding securities dealings.

New Initial Free Float Requirement

A new "free float" requirement ensures that a portion of shares held by the public is not subject to disposal restrictions at listing, promoting immediate liquidity. For most issuers, the free float shares at the time of listing must either (i) comprise at least 10% of the relevant class for which listing is sought, with a market value of at least HK$50 million (HK$15 million for GEM listings); or (ii) have an expected market value of at least HK$600 million.

For PRC issuers with no other listed shares, the free float requirement applies to the H shares which must either (i) represent at least 10% of total issued shares in the class to which the H shares belong with HK$50 million market value (HK$15 million for GEM listings); or (ii) have an expected market value of at least HK$600 million. For A+H issuers, the threshold is lowered to (i) at least 5% of total issued shares in the class with HK$50 million market value (or HK$15 million for GEM listings); or (ii) expected market value of at least HK$600 million.

This requirement supersedes previous bespoke free float rules for Biotech and Specialist Technology Companies, integrating them into the unified framework.

Reforms to IPO Offering Mechanisms

To optimise IPO price discovery by ensuring a meaningful allocation of IPO shares to the bookbuilding placing tranche investors, who are the key price setters of the final offer price, HKEX has imposed a new requirement that at least 40% of total offer shares must be allocated to the bookbuilding placing tranche.

For allocation to the public subscription tranche, issuers can choose between two mechanisms:

• Mechanism A: Initial allocation of 5%, with clawback based on demand:

• Mechanism B: Minimum initial allocation of 10% up to a maximum of 60% (aligned with the 40% bookbuilding minimum), but with no clawback.

As an indirect result of the minimum allocation to bookbuilding placing tranche and the public subscription tranche, allocation to the cornerstone placing tranche is effectively capped at 55% (if Mechanism A is adopted) or 50% (if Mechanism B is adopted).

Other amendments include removing the previous minimum spread of placees (being not less than three holders for each HK$1 million of the placing, with a minimum of 100 holders in an IPO placing tranche), and exempting bonus issuances from initial public float requirements if certain conditions are met.

Further Consultation on Ongoing Public Float Proposals

In light of the tiered initial public float thresholds, HKEX is consulting on ongoing public float requirements to provide flexibility for post-listing capital management. Key proposals include:

• Ongoing public float threshold:
  • Initial Prescribed Threshold: Maintain at least 25% or the lower percentage set at listing (applicable to existing waivers and Tiers B/C).
  • Alternative Threshold: Public float with market value ≥HK$1 billion (calculated on a 125-trading-day VWAP rolling basis) and ≥10% of total issued shares (excluding treasury shares), which is only available for issuers whose shares have traded more than 125 days post-listing.

 

• For A+H issuers, bespoke ongoing public float thresholds will apply such that H shares in public hands must have ≥HK$1 billion market value or represent ≥5% of the shares in the class to which H shares belong.
• All issuers have to confirm compliance with the ongoing public float requirements in monthly returns and annual reports, with additional disclosures for those using the Alternative Threshold or bespoke rules.
• In case of shortfalls in the public float, while there will not be automatic trading suspension solely for float issues, the issuer will be under the obligations to announce within one business day after becoming aware of the shortfall, restore public float, provide a restoration plan within 15 business days, and issue monthly updates. Issuers and directors must avoid actions further reducing float (e.g. repurchases).
• Special stock marker for "significant" shortfalls, and delisting if not restored within 18 months (12 months for GEM).

Transitional Arrangements

Until the ongoing proposals are finalised and implemented (if adopted), existing float rules will apply with transitional adjustments:

• for existing issuers: continue with the 25% threshold (or lower threshold accepted at listing), calculated on the prior basis
• for new applicants (with listing documents on or after 4 August 2025): maintain the initial prescribed percentage under the new initial public float requirements

Conclusion

These reforms represent a balanced approach to modernising Hong Kong's IPO regime, reducing barriers for large issuers through tiered floats while safeguarding liquidity via free float mandates and allocation rules. By capping cornerstone dominance and enhancing public tranche access, the changes could boost retail participation and price discovery efficiency, potentially attracting more high-profile listings amid global competition. However, issuers, particularly PRC entities, must carefully structure offerings to meet the public float and free float thresholds, while monitoring ongoing consultations that may introduce flexible post-listing floats but heightened reporting. Market participants, including investors and intermediaries, may benefit from improved transparency and reduced volatility, while large-cap issuers gain strategic headroom for capital actions. Overall, these enhancements could invigorate the Hong Kong IPO market, reinforcing its appeal for international capital raisings, but require proactive compliance planning to navigate the transitional phase.

For further advice on how these reforms may impact your listing plans or ongoing obligations, feel free to contact our Corporate team.

The information given in this document concerning technical legal or professional subject matter is for guidance only and does not constitute legal or professional advice.  Always consult a suitably qualified lawyer on any specific legal problem or matter. Bird & Bird assumes no responsibility for such information contained in this document and disclaims all liability in respect of such information.