- Hong Kong Stock Exchange (HKEX) dark pool trading involves numerous proprietary terms, with most being recognizable but some still unfamiliar.
This is an article related to dark pools, outlining and explaining the proprietary terms within it: The company issued 67,333,350 shares globally for public offering, with a prospectus price of HK$11.6. The issuance ratio was 13%, raising approximately HK$781 million, using mechanism B allocation. The public offering fixed proportion was 10%. A cornerstone investor was introduced in the state-allocated portion, subscribing for approximately HK$77 million, accounting for 9.81% of the global offering. The company’s total subscription reached 376,000 people, with 190,000 choosing to subscribe one lot; another group subscribed for 19,516 people, hitting 2416 shares. The sales results showed that the company’s prospectus public offering multiple ratio reached 4908.33 times, state allocation subscription multiple was 10.15 times, with no adjustment; Xuanzhe Biology - B had a single-lot winning rate of only 1%, with everyone drawing lots, even hitting the top hammer it was unstable in the end, and ultimately 13,467 people were successful in getting in. Furthermore, the company’s IPO this time had no green shoe option.
Below is a systematic collation and explanation of the proprietary terms related to Hong Kong IPOs and dark pools within the article:
Offering Structure and Allocation Mechanism
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Global Offering Refers to the offering of shares to global investors when a company first goes public (IPO), including Public Offering (targeting retail investors) and Institutional Placement (targeting institutional investors). This offering involved 67,333,500 shares for Huatong Biology-B, representing a 13% issuance ratio, meaning the public holding stake will account for 13% of the total share capital after listing.
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Mechanism B Allocation Method A new stock allocation mechanism launched by the Hong Kong Stock Exchange in 2023, allowing issuers to pre-set a minimum public offering percentage (10% - 60%) and without a clawback mechanism. Huatong Biology-B chose a fixed public offering ratio of 10%, meaning it wouldn’t draw down shares from the institutional placement even with an international subscription multiple as high as 4908 times, resulting in a consistent public offering share of 6,733,400 shares.
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Clawback Mechanism Under traditional Mechanism A, if the oversubscription multiple triggers a threshold (e.g., above 100x), shares from the institutional placement can be clawed back to the public offering, up to 50%. However, Mechanism B does not apply this rule, so Huatong Biology-B did not conduct a clawback.
Subscription Group and Subscription Strategy
- Public Offering and International Placement
- Public Offering: Accounted for 10% (673.34 million shares) of the global offering, targeting retail investors, with 37.6 thousand applicants, including 19 thousand who only subscribed for one lot.
- International Placement: Accounted for 90% (6060.01 million shares), primarily allocated to institutional investors. One cornerstone investor was introduced in this round, subscribing for HKD 0.77 billion, representing 9.81% of the global offering, with a lock-up period typically lasting 6 months.
- Group A and Group B
- Group A: Small to medium investors with subscription amounts ≤ HKD 50 million, allocated 50% of the public offering shares (336.67 million shares). This group had 19 thousand applicants, including 19 thousand who only subscribed for one lot.
- Group B: High-net-worth investors or institutions with subscription amounts > HKD 50 million, allocated the remaining 50% of the public offering shares (336.67 million shares). This group had 19,516 applicants, with a maximum subscription amount (top hammer) of 2416 shares.
- Top Hammer Subscription Refers to Group B investors subscribing for the highest limit of public offering shares, typically allowing them to acquire 50% of the public offering shares. Bamboo Bio-B’s top hammer quantity was 2416 shares, but due to the extremely hot public offering (over-subscribed 4908 times), top hammer investors still needed a draw, with a very low hit rate.
Subscription Data and Winning Rules
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Subscription Multiple
- Public Subscription Multiple: Total subscription funds offered publicly divided by the offering amount, reflecting retail investor demand heat. Bamboo Bio-B reached 4908.33 times, setting a market record.
- Institutional Allocation Multiple: Institutional subscription amounts divided by the offering amount. Bamboo Bio-B was 10.15 times, indicating moderate institutional demand.
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One-Hand Winning Rate and All-Round Lottery Draw
- One-Hand Winning Rate: The probability of successfully subscribing with one hand (typically the minimum trading unit). Bamboo Bio-B was only 1%, meaning that out of every 100 people, only 1 person would be successful.
- All-Round Lottery Draw: Due to the extremely high oversubscription multiple for the public offering, all subscribers (including Group B and last-hit hammer investors) were required to participate in a lottery draw to allocate shares, without a “steady win” mechanism.
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Fractional Share Allocation Publicly offered shares are allocated proportionally after being divided into fractional shares (such as 50 shares), and any remaining fractional shares will be consolidated and distributed from highest to lowest based on subscription amount. In Bamboo Bio-B, the number of successful investors was 13,467 people, and some investors may obtain additional shares through fractional share allocation.
Special Mechanisms and Market Impact
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Anchor Investors Strategic investors who sign subscription agreements with the issuer before an IPO, typically well-known institutions or corporations. Xuzhou Biotech-B introduced one anchor investor who subscribed to HK$0.77 billion, representing 9.81% of the global offering, aiming to enhance market confidence.
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Green Shoe Mechanism (Over-Allotment Option) Underwriters can issue an additional 15% of shares after listing within 30 days to stabilize prices. If the price falls below the IPO price, underwriters must buy back stocks from the secondary market to support the price. Xuzhou Biotech-B did not use a green shoe mechanism, which could lead to significant volatility in its initial stock price.
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Dark Pool Trading Over-the-counter trading of new shares on the day before listing, typically provided by brokers. Dark pool prices reflect the market’s preliminary expectations for the new shares. If they are higher than the IPO price (as with Xuzhou Biotech-B’s dark pool price potentially rising), it indicates a good performance on its first trading day; otherwise, it could lead to a break-down.
Key Term Comparison and Market Background
- Mechanism A vs. Mechanism B
Mechanism A allows for a buyback, enabling retail investors to obtain more shares during oversubscription; Mechanism B has a fixed public offering ratio, better suited for IPOs dominated by institutions. Bamboo Bio-B chose Mechanism B, likely because the underwriters wanted to balance the allocation between institutional and retail investors. - Group A vs. Group B
Group A had a lower chance of winning but potentially higher returns per share (due to more dispersed allocation), while Group B had a higher chance of winning but incurred higher financing costs. Bamboo Bio-B Group B received 19,516 applications, reflecting high-net-worth investors’ enthusiasm for pharmaceutical stocks. - Cancellation of the Buyback Mechanism’s Impact
Under Mechanism B, there is no buyback, leading to Bamboo Bio-B’s public offering of only 6.73 million shares, exacerbating the “many crows, few pots” situation for retail investors, resulting in a historical low in the initial subscription rate.
Summary
The IPO case of Xuan Zhu Bio-B vividly illustrates the structural characteristics of the Hong Kong stock market: the application of Mechanism B limited retail investor allocation ratios, base investors stabilized institutional demand, while super-high subscription multiples and a full draw highlighted the market’s speculative fervor for biotech stocks. The absence of dark pool trading and a green shoe mechanism further amplified the uncertainty during the initial listing period. Investors should combine their risk preferences with rational assessments of new stock fundamentals and market sentiment, avoiding blind following.