FAQ

Products

Basic Knowledge

HK Shares IPO

HK Shares IPO

What is IPO?

IPO refers to the first public distribution of stocks from a company that have not been publicly traded before.

Last Update: 2017-01-20

Why do companies go public?

Enterprises can raise new capital for expansion through IPO. It can also raise the publicity of enterprises.

Last Update: 2017-01-20

How do companies go public?

The Listing Committee of the Stock Exchange of Hong Kong (SEHK) must approve all proposed listing before it could go public. Two essential parties for a listing are sponsors and underwriters. Sponsors are responsible for handling the application procedures and mainly deal with SEHK. Except for some special cases, most of the issuers in an IPO would need underwriters to buy all shares not subscribed by the public.

Last Update: 2017-01-20

How do I know which IPOs are available and when?

According to listing rule of SEHK, all enterprises must broadcast to the public for their proposed listing. While main board issuers need to announce in both an English and a Chinese newspaper, GEM board issuers can announce via the Web page owned by GEM Board of SEHK.

Last Update: 2017-01-20

How do individual investors get IPO shares?

Such information is given in each IPO's application form and prospectus.

Last Update: 2017-01-20

What is the method of IPO payment?

Payment methods for IPO and e-IPO are specified in the application forms.

Last Update: 2017-01-20

How do I get the results of subscription?

For those clients who have applied the IPOs in their own name, subscription results can usually be found in newspapers. If the IPO subscription is applied through us, you can check your allotment result by viewing your trading account on or after the allotment date.

Last Update: 2017-01-20

How to evaluate IPO shares?

You can compare the prospects and multiples like P/E ratio of peers in the same industry.

Last Update: 2017-01-20

What are the primary and secondary markets?

The primary market is the market in which newly issued securities are offered for sale. The secondary market is the market where existing securities are traded between investors.

Last Update: 2017-01-20

What is meant by primary and secondary offerings?

A primary offering refers to an IPO. A secondary offering refers to the public distribution of stocks from a company whose shares have already been listed.

Last Update: 2017-01-20

What is book building?

Book building is a process which usually occurs in placing. All underwriters submit the number of shares and respective prices that they are willing to underwrite.

Last Update: 2017-01-20

What is a syndicate?

A syndicate refers to the underwriters who participate in the same IPO.

Last Update: 2017-01-20

What is a prospectus?

A prospectus is a document showing the formation of and intent to issue shares. It is a legal document stating the purpose of the securities issue, describing in detail the primary business of the issuer, the issuers financial condition and all matters as well as requirements relating to the IPO.

Last Update: 2017-01-20

What is a 'Red Herring'?

A 'Red Herring' is a customary statement, printed in red, on the first page of a prospectus. It is not an offer to sell, but contains the required public disclosures. It is also called the preliminary prospectus. The notice is printed in red on the first page of the preliminary prospectus and on the face of the preliminary offering circular.

Last Update: 2017-01-20

What are underwriters?

Underwriters are those who undertake to buy all remaining shares of an issuer when the IPO is not fully subscribed by the public.

Last Update: 2017-01-20

What is a 'cooling-off' period?

A 'cooling-off' period, which is also known as a 'black-out period', refers to the period during which no brokers can issue research reports on the proposed listing enterprise.

Last Update: 2017-01-20

What do new issue and additional issue refer to?

A new issue is the issuance of new shares at the offer price in an IPO. An additional issue is the issuance in addition to the original proposed shares, which often occurs when there is over-allotment.

Last Update: 2017-01-20

Is there more than one type of offering?

There are many types of offering including public offer, placing, introduction and so forth.

Last Update: 2017-01-20

What is the public offering price?

The public offering price is the price per offer share, exclusive of brokerage cost, the SEHK trading fee and the SFC transaction levy at which the offer shares are to be offered pursuant to the share offer.

Last Update: 2017-01-20

Stock Options

What is a stock option?

A stock option is a contract entered into between two parties, a buyer and a seller. The buyer has the right, but not the obligation, to trade an underlying asset with the seller at a predetermined price, within a certain time.

There are two types of options: a call and a put. The last trade day will be one business day before the final trade day of the contract month. This American-type option can be exercised on or before the expiry date and settled in physical scrip.

*An American-style option can be exercised at any time from its issuance up to its expiration.

Last Update: 2016-07-08

What is a call option?

The buyer pays a premium to buy a call option contract, which gives the buyer the right to buy a specific amount of the underlying shares, on or before a future date (expiry date), at an exercise price (strike).

Last Update: 2016-07-08

What is a put option?

The buyer pays a premium to buy a put option contract, which gives the buyer the right to sell a specific amount of the underlying shares, on or before a future date (expiry date), at an exercise price (strike).

Last Update: 2016-07-08

What is a strike price?

The strike price, also known as the exercise price, is the price at which the option buyer and seller agree to trade the underlying stock, if the option is exercised.

A call option whose strike price is below the market price of the underlying stock is in-the-money. Such an option allows the call holder to buy the shares for less than the current market price. A call whose strike price is above the underlying market price is out-of-the-money. Conversely, a put whose strike price is above the underlying price is in-the-money. This means the put holder can sell the asset for more than the current market price. A put whose strike price is below the underlying price is out-of-the-money.

It can be seen from this that only in-the-money options would generally be exercised by their holders because otherwise the holders can buy or sell directly in the market at a better price. If an options strike price equals the price of its underlying asset, the option is said to be at-the-money (sometimes this term is applied to options whose strike price is very close to the underlying market price but not exactly equal).

Last Update: 2016-07-08

What is the exercise period (expiry date)?

Stock options have an exercise period which limits their validity. After the expiry day of that exercise period, the option can no longer be traded or exercised.

Last Update: 2016-07-08

What is a premium?

The price at which an option trades is generally called the 'premium', which is the amount of funds that an option buyer pays to the option seller.

The premium is determined by market forces.

Last Update: 2016-07-08

What is a margin?

The option sellers are required to deposit a margin, to anticipate daily price risk to cover market price fluctuations.

Last Update: 2016-07-08

Futures

What are the advantages of trading HSI futures and options contracts?

Proven markets
Hang Seng Index futures and options allow experienced and novice investors alike to participate in the performance of the constituent stocks in the index. As both local and international investors regard the Hang Seng Index as a tested benchmark for the Hong Kong equity market and a yardstick of portfolio performance, these contracts are consistently used by investors for trading and risk management purposes.

Cost effective
Hang Seng Index futures and options enable hedging activities to be carried out in a more cost-effective way as they are traded on a margin basis. The margin to carry an open position is only a fraction of the contract value.

Low transaction costs
As the total value of high-capitalisation stocks represented in each Hang Seng Index futures and option contract is substantial and only one commission is charged to establish or liquidate a contract, transaction costs are low when compared with purchasing or selling the constituent stocks.

Last Update: 2016-07-08

What are the commonly used market terms that relate to stock index futures and options trading?

Discount - The amount by which the price of a stock index futures contract is quoted below the cash market price.

Expiry Day - The business day immediately preceding the last business day of the contract month.

Hedging - Transferring the risk of loss due to adverse price movements through the purchase or sale of contracts in the stock index futures market.

Leverage - The essence of stock index futures trading. Controlling a large investment with a relatively small margin deposit.

Premium - The amount by which the price of a stock index futures contract is quoted above the cash market price.

Last Update: 2016-07-08

What is a margin?

In the futures markets, both buyers and sellers are required to deposit an initial margin, which usually amounts to the anticipated daily price risk to cover market price fluctuations. At the end of each trading day, investors accounts are adjusted according to the value of each contract or marked to market. If the initial margin deposit falls below a stipulated level, namely the maintenance margin, after marking-to-market, a margin call is issued and the investor must deposit additional funds to restore the account to the initial margin level.

Last Update: 2016-07-08

What is an initial margin?

This is the minimum amount of margin in a fund that a client must deposit prior to opening a position. The amount of initial margin is defined by the SPAN calculation from the HKEX or by our company.

Last Update: 2016-07-08

What is a maintenance margin?

The maintenance margin is 80% of the initial margin.

Last Update: 2016-07-08

What is a margin call?

If the total equity of your account falls below the maintenance margin level (which is 80% of the initial margin), the available balance in your portfolio will show a debit balance. A margin call to return the equity back to the initial margin level will be required. You are then required to deposit sufficient funds or liquidate your position to satisfy the margin call.

Last Update: 2016-07-08

What is a maturity date?

A maturity date is the date on which a futures contract must be fulfilled.

Last Update: 2016-07-08

Back To Top