Hong Kong Sponsor Principal Association was recently announced to be established. Focused on enhancing the international status of Hong Kong's capital market The founding president of the association, Howard Tang Ho Wai, who is also the president of Fortune Financial Group, stated that the new share issuance market of the Hong Kong stock market is currently booming. In the future, the association will represent the sponsor industry and maintain good communication with regulatory authorities, with the goal of consolidating and enhancing the international status of Hong Kong's capital market and the professional level of sponsors. Regarding the work objectives of the association, Tang Ho Wai pointed out that sponsor principals are recognized by the Securities and Futures Commission (SFC) as the final responsible person for each IPO application case, whose function is to balance the interests of issuers and investors. Currently, there are about 200 sponsor principals on the SFC's approved list. Tang Ho Wai noted that although the companies of the association's members are mainly small-sized sponsor firms, the sponsor firms affiliated with the 6 founding presidents and several honorary advisors have provided sponsorship services for more than 170 companies' listings in the past, with each having at least ten years of industry experience. The existing clawback mechanism has proven effective, proposes caps on cornerstone investor subscriptions Since the Hong Kong Exchanges and Clearing Limited (HKEX) has not yet directly consulted small and medium-sized sponsor firms on the IPO market optimization plan, the establishment of the association is to represent the industry to voice its opinions. The association will recruit individual sponsor principals approved by the SFC as members. At the end of last year, HKEX consulted the market on optimizing IPO market pricing and public offerings, including proposals requiring issuers to allocate at least half of the offered shares to the bookbuilding tranche, and changing the current 50% cap of the clawback mechanism to 20%. Tang Ho Wai stated that this approach cannot fundamentally solve the problem. On the contrary, he proposed raising the trigger conditions for the clawback mechanism. The current clawback mechanism has been effective all along, and the industry has not had any special objections. Moreover, there is no evidence showing that too much allocation to retail investors will drag down the stock price performance after listing. However, Tang Ho Wai pointed out that the clawback mechanism still has room for improvement, as its trigger conditions are too low. Especially under the new Fast Institutional Investor (FINI) regime, investors only need to prepay the amount for the maximum number of shares that can be allocated in the public offering (POmax), instead of the full amount. Therefore, some securities firms offer "no bank financing interest" margin financing to attract customers, "competing to place orders, leading to inflated oversubscription ratios", which frequently triggers the clawback mechanism and may cause stock price fluctuations. It has been suggested that this phenomenon is a side effect of the new FINI mechanism, and the trigger conditions for the clawback mechanism can be raised. Currently, the trigger is when new shares are oversubscribed by more than 15 times, which could be raised to 150 to 1,000 times. The association also proposes setting a cap on the subscription quota for cornerstone investors. Tang Ho Wai believes that the insufficient allocation for inquiry and bookbuilding investors is due to the current lack of a cap on the shares that cornerstone investors can be allocated. In other words, cornerstone investors could occupy most of the allocated shares. Therefore, the association proposes setting a cap on the shares that cornerstone investors can subscribe to, so as to balance the interests of other investors. © 2021 Meishun (Hong Kong) Management Consulting Co., Ltd. and Meishun (Hangzhou) Management Consulting Co., Ltd. All rights reserved. Meishun Meiyin (Hangzhou) Consulting Management Company is the domestic subsidiary of Hong Kong Meishun Management Consulting Company under the same actual controller. Both companies are under the same actual controller, managed under the same China-based management framework, and comply with the laws of Hong Kong and mainland China.