Tightening Regulation, Hong Kong IPO Practice Logic Changes, Investment Banks Cut Reserves and Exit Projects, Era of Selection Begins

SEC News, March 20 (Reporter Zhao Xinrui) - Is Hong Kong regulation compliance still the priority, or is pursuit of business efficiency taking precedence? Recently, this debate has seen new developments. Currently, some investment banks are aligning with regulatory requirements by reducing project reserves, and others have withdrawn from IPO filing projects.

As Hong Kong regulators continue to tighten IPO oversight, investment banks are adjusting their business strategies, leading to a series of ripple effects gradually emerging in the Hong Kong stock IPO market. According to market sources, under the strict regulatory environment, some banks are being more cautious when taking on new IPO projects, even refusing high-risk IPOs. Additionally, to meet the quantitative requirement that “each main sponsor is responsible for no more than 6 active IPO projects,” some banks are choosing to suspend IPO applications.

One industry analyst explained that the tightening of regulations in Hong Kong is forcing sponsor institutions to proactively screen projects. The quality and risk control standards of investment banks are continuously improving, and their operational logic is shifting toward “focusing on quality and compliance.”

Behind this shift are quality issues exposed during the recovery of the Hong Kong IPO market. Since 2025, there has been a surge of Chinese companies listing in Hong Kong, with some days seeing multiple IPOs simultaneously ringing the bell. However, behind the market boom, the uneven quality of IPO documentation has become increasingly apparent, prompting regulatory attention and rectification at the end of the year.

Considering current market trends and regulatory guidance, market participants are generally focused on two questions: Under compliance-driven development, what directions should the Hong Kong IPO market focus on? And how will this impact the total number of IPOs throughout the year?

Chinese investment banks withdrawing from Hong Kong IPO projects

The tightening of IPO review standards by Hong Kong regulators is gradually affecting Chinese investment banks’ business strategies. The withdrawal of some Chinese banks from Hong Kong IPO projects has become a notable development.

According to announcements, only one Hong Kong IPO candidate, Saimei Te, announced the termination of its overall coordinator in March. On March 8, the company announced that it had reached agreements with CITIC Lyon and CITIC Construction International to terminate their roles as overall coordinators.

This termination has attracted widespread attention. The main reason cited in past cases of IPO project termination was usually the expiration of the appointment period or mutual non-renewal, but Saimei Te’s announcement did not specify the reason for termination or whether the appointment had expired.

Market speculation suggests that the withdrawal of these two Chinese investment banks may be related to the Hong Kong Securities and Futures Commission’s (SFC) limit of no more than five IPO projects per sponsor personnel.

In comparison, another case of termination earlier this year aligns more with industry norms. On February 24, Ule Sai Sharing announced that its appointment as overall coordinator was terminated because Huatai Financial’s term had expired and both parties agreed not to renew.

Industry insiders reveal that some leading securities firms’ IPO projects filed before May this year have not been accepted by regulators, further confirming that Chinese banks’ withdrawal from Hong Kong IPOs is a proactive response to increased regulatory scrutiny.

Under the emphasis on quality, whether more Chinese banks will exit current Hong Kong IPO projects due to personnel capacity, project risks, or other factors remains a key concern.

Hong Kong regulators intensify oversight, posing compliance challenges for brokerages

The continuous rise in compliance standards is making the Hong Kong IPO market face more stringent tests.

Recently, the Hong Kong Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC) jointly conducted enforcement actions, searching the stock capital markets departments of some brokerages, focusing on core activities such as IPO pricing and placement. This move has garnered widespread attention. Some investment banks believe this marks a shift from previous “external review” models, moving from document scrutiny to direct intervention in core business operations, indicating an escalation in IPO regulatory enforcement.

The increased regulatory pressure, combined with the further standardization of sponsor professionals’ quality, has several implications. Industry experts highlight two key areas to watch:

First, the compliance boundaries of the Hong Kong ECM (Equity Capital Markets) business chain will tighten further under joint regulatory actions. Whether the focus is on insider trading, placement arrangements, information flow, or abnormal trading behaviors, once regulators penetrate the ECM business line, internal information barriers, sensitive list management, project knowledge permissions, and the segregation of roles in underwriting, dealing, and sales will be reinforced, leading to more refined compliance controls.

Second, in this context, Chinese brokerages’ IPO activities in Hong Kong are under increased compliance pressure. In recent years, the volume of Hong Kong IPO projects undertaken by Chinese brokerages has surged, bringing rapid growth but also compliance challenges. Internal risk control systems, project execution quality, experienced personnel ratios, and cross-department compliance segregation are all under heightened scrutiny. The more projects undertaken, the higher the likelihood of regulatory focus.

From an industry perspective, the previous business model relying on lenient compliance and rough execution will become unsustainable. Gray-area operations, short-term speculative activities, and low-quality project execution are likely to be the most directly impacted areas during this regulatory storm.

Industry analysts suggest that future companies listing in Hong Kong will need to consider not only their ability to complete projects but also their stable project execution capacity, clear compliance boundaries, mature ECM collaboration systems, and underlying compliance frameworks capable of withstanding regulatory review. As enforcement intensifies, further industry reshuffling in the Hong Kong IPO sector is expected.

Will Hong Kong’s 2026 IPO volume expectations change?

A series of regulatory adjustments has also raised questions about whether the overall IPO volume forecast for Hong Kong in 2026 will be affected.

According to multiple industry assessments, the number of new listings in Hong Kong this year is expected to be between 150 and 180, raising approximately HKD 3.2 to 3.5 trillion. The trend of Chinese companies raising funds through Hong Kong listings is expected to continue into 2026.

Some industry insiders believe that, given the current shortage of qualified Chinese investment banks, the pace of new IPO projects in Hong Kong may slow, but project quality is likely to improve as banks shift from “winning projects” to “selecting projects.”

Recent comments from HKEX management further confirm the regulatory focus on quality. HKEX Chairman Charles Li emphasized that while increasing IPO numbers is important, market quality will be prioritized. He stated that liquidity and trading volume are important, but the key is a high-quality market that can continuously attract funds, investors, and companies. HKEX CEO Nicolas Aguzin also clarified that the SFC’s concern is the quality of sponsor submissions, not the quality of the listing applicants themselves. This clarifies the operational boundaries for investment banks.

Some investment banks suggest that, to balance market activity and application quality, future adjustments to the number of IPO filings in Hong Kong may be necessary. Overall, whether the total number of IPOs in 2026 fluctuates or not, “quality first” will remain the core guiding principle throughout the year.