Since entering 2024, Hong Kong stocks have clearly picked up in new markets. Most of the 21 IPOs listed in the first five months of 2024 have risen, with an average increase of 23.6%.

Youbo Holdings, which was listed in early June, also brought new market enthusiasm for Hong Kong stocks to a new level. As the first GEM IPO issued by the Hong Kong Stock Exchange in the past three years, it was extremely popular with market capital. The oversubscription was as high as 2503 times, becoming the “overbought king” of Hong Kong stocks in the past three years, yet its listing performance did not live up to expectations. At one point, Futu's undercover market surged to 160%.

The money-making effect of Hong Kong stocks in the new market is obvious. It has also opened many newbies and veterans with memories of the IPO bull market, which has been sealed in dust for a long time, and has also made many new investors scrape their hands and want to join the new army.

I know you might be in a hurry, but don't worry. There are three important rule changes to the Hong Kong stock market. Even some newbies and veterans don't necessarily know all of them, but you really need to figure it out; otherwise, losing money by stepping into a hole is probably just a matter of minutes. What are the three changes?

First, many households have made a new withdrawal history.

If investors buy the same new stock from different brokerage firms, it means that multiple companies are opening new shares. Traditionally, multiple households have not been allowed to make new calls, but there are technical difficulties in reviewing previous subscriptions from multiple households. Therefore, just as traffic light rules cannot prevent pedestrians from running into red lights, many households objectively existed until now.

However, in November 2023, the Hong Kong Stock Exchange launched the Electronic Settlement System for New Stock Issuance (FINI System), which makes it very easy for multiple households to check. Because it ensures that all repeated subscription orders do not enter into the IPO lottery and settlement process.

In other words, no matter how many brokerage firms have subscribed to the same new stock, all subscription orders will be declared invalid. Note that “all” will not reserve any orders for investors, so don't get lucky.

This means that many households have in fact withdrawn from the historical stage.

Second, the settlement cycle has been shortened, and new costs and market risks have been reduced.

While the FINI system technically eliminates multiple accounts, it also drastically shortens the IPO settlement process. Previously, it took 5 trading days from the end of the Hong Kong Stock IPO to the listing. During this time, not to mention that the subscription capital for newcomers was taken over, they were also forced to endure up to 5 days of market fluctuations, thereby increasing the risk of opening new shares.

However, after the launch of the FINI system, this process was shortened to two trading days, as shown in the figure below.

(1) The prospecting period remains the same, usually 3.5 working days.

(2) Previously, IPO pricing was generally on the day the prospectus ended, but now it has been changed to one day after the prospectus closing date (T-1), and the pricing date is defined as T day.

(3) One business day after the pricing date, that is, T+1, is the dark market, and the next business day, T+2 is officially listed.

The shortening of the IPO settlement process has brought two major benefits.

The first benefit is significant savings on bank financing interest. In the past, investors needed to pay interest for about 6 days to buy a Group B head if they were to finance a new one, and the average interest cost was over HK$3,000.

Now, due to the shorter settlement period, the shortest interest accrual cycle is only one day. However, Futu even provides customers with an interest-free preferential policy for bank financing. In other words, when customers buy a new product in Futu, they don't need a penny of interest even if they buy a head hammer (maximum subscription tier) worth tens of millions or even hundreds of millions of dollars through bank financing! It can be said that it is a new money-saving ceiling.

The second benefit is reducing the risk of playing new games. This is easy to understand, that is, from the time the offering closes to the time when the dark market can be traded, from the previous 5 trading days to 2 trading days, market risk exposure has been reduced by more than half. Investors can focus more on the risks of IPOs themselves rather than market risks.

Third, dark market trading comes with a blind box attribute.

Prior to the launch of the FINI system, the placement results of new shares were usually announced on the morning of the day of the dark market transaction. Some important information contained in the placement results will greatly affect the undermarket performance of the IPO and investors' trading decisions.

This information mainly includes public offering subscription multiples, winning rates and number of subscribers for each subscription tier; international placement subscription multiples, over-allotment (green shoe) allocations, etc.

For example, if state-owned securities are very popular, or if the number of prime purchasers is very high, it means that institutional or large investors are very optimistic about IPOs, which in turn favors the undermarket performance of IPOs.

However, after the launch of the FINI system, the results of the IPO were announced on the evening of the end of the dark market transaction. Investors can also speculate on the multiples of the public sale and the winning rate from the winning results announced by the brokerage firm in advance, which is not bad either. However, investors are unable to obtain key information such as the subscription status of the national subscription in advance from public information; this is a bit like opening a blind box.

Take Chabaidao, which was listed in late April 2024, as an example. This IPO fell about 13% in the dark market on April 22. Some investors may think that Green Shoe will protect the market on the first day of listing, thereby reducing the first-day decline, so this group of investors may tend to buy at the bottom of the dark market.

However, in reality, the placement results announced on the Chabaidao dark market on the same night showed that the national allocation ratio was only 1.11 times, and the overallotted ratio was only about 2.1%. Green Shoe buying support was very limited. On the first day of listing on April 23, Chabaidao's decline widened further on the basis of the dark market. The biggest intraday decline reached 38%, closing down about 27%. Investors protected by the dark market may lose quite a bit.

Therefore, since the placement results were not announced in advance, investors may need to be more careful when making dark market trading decisions.

Finally, to sum it up,

Currently, Hong Kong stocks are picking up sharply in the new market, and the money-making effect is obvious, but investors need to pay attention to the three major rule changes before entering the market.

First, multiple accounts will be checked again with one click. Investors should not take advantage of luck, so as not to miss out on potential wins and profit opportunities, and waste interest fees.

Second, the settlement cycle has been shortened, and new interest costs and market risks have been greatly reduced. Futu Bank's financing is directly interest-free, and at the same time, the waiting time from prospecting to undermarket transactions has been shortened to two trading days.

Third, the placement results are only announced after the dark market transaction is over. Some important national distribution and public subscription data are missing during undermarket transactions, and more caution is needed in trading decisions.