The Hong Kong Securities and Futures Commission has published a circular reporting improved sponsor resources and principal capacity since January, while identifying persistent weaknesses in listing applications and serious concerns about arrangements that may artificially inflate IPO demand or facilitate manipulative post-listing trading. The regulator expects sponsors, overall coordinators and capital market intermediaries to identify, investigate, escalate and report potential red flags. The IPO pipeline grew from more than 420 active applications involving 53 sponsors and 261 signing principals in January to more than 610 applications involving 64 sponsors and 325 signing principals in September. Despite this growth, average active engagements per signing principal fell from 3.4 to 3.0, while the numbers of strained principals and sponsors with strained principals each declined by 78%. However, vetting was suspended for 65 applications between January and September, with 14 resumed by Oct. 1, and the commission raised concerns with 11 sponsors about 13 applications, including inadequate due diligence, weak responses and questions over applicants’ businesses. The commission highlighted possible undisclosed funding of subscriptions, guaranteed returns and other arrangements linking issuers with designated investors. Red flags include substantial fund flows benefiting investors or connected parties, unusual or late orders, allocations inconsistent with agreed strategies and structures concealing ultimate investors. Gatekeepers must conduct and document further inquiries, critically assess explanations, escalate unresolved concerns and report dubious arrangements to the commission and the Stock Exchange of Hong Kong. Overall coordinators and capital market intermediaries must reject suspicious orders where concerns remain unresolved.

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