Primary Markets
Primary Markets by Ruari Ewing, Charlotte Bellamy, Katie Kelly and Mushtaq Kapasi
Hong Kong SFC bookbuilding consultation On 7 May, ICMA submitted its response to the consultation by the Hong Kong Securities and Futures Commission (SFC) on a proposed addition, relating to ECM and DCM bookbuilding and placing activities, to its binding code of conduct for SFC licensed and registered persons. (The publication of the consultation was reported at page 37 of the 2021 Second Quarter edition of this Quarterly Report.) By way of introduction, ICMA’s response: (a) emphasises the difference between bond (DCM) and equity (ECM) markets and the need for the proposed code additions to segregate its DCM and ECM provisions; (b) expresses understanding of SFC concerns around certain Hong Kong market dynamics and support for solutions that also enable Hong Kong to thrive as a venue for international DCM issuance; (c) suggests SFC may find value in reviewing the legal texts of the national regulations behind IOSCO’s September 2020 recommendations (reported at page 38 of the 2020 Fourth Quarter edition of this Quarterly Report); and (d) provides links to background materials on bond syndication. In terms of geographical scope, the response notes the crossborder nature of most DCM transactions involving Hong Kong, the risk of inconsistent practices in transactions where some intermediaries are in-scope and others are not, and also
the related risk of regulatory arbitrage arising from various aspects of the SFC’s proposal. In this respect, the response proposes a clearer Hong Kong nexus (such as Hong Kong listed obligors). It also questions how equity-linked debt might be characterised. In terms of syndicate roles, the response emphasises (i) substance over titles, (ii) that non-syndicate roles are not recognised in current DCM practice and (iii) that “overall coordinators” (OCs) should not be responsible for advising issuers on syndicate composition and remuneration or for the conduct of other syndicate members (each being responsible for their own conduct, as well as for their own risk position). The response agrees with early syndicate appointment and fixing of remuneration (albeit with electronic form being sufficient), namely prior to public announcement of a transaction. The response also notes underwriters do not have a fiduciary relationship with their issuer clients, acting rather as arms’ length principals when making transaction recommendations. The response also addresses various granular questions, notably stating that: (a) various considerations arise in the context of rebates: uniform pricing for end-investors, any intermediary fiduciary duties and that syndicates cannot police other intermediaries; (b) information relating to connected investors should emanate from issuers; (c) syndicates seek to mitigate duplicated and unusual/ irregular orders; (d) orders known to be inflated are not accepted into orderbooks; (e) orderbooks should be transparent to issuers and any updates should be consistent, but public book updates should not be compulsory; (f) “x” orders should, on balance, be prohibited under the code (and “omnibus” orders are not a recognised concept in current DCM practice); (g) arms’ length internal orders should be treated pari passu with external orders in terms of pricing relevance and allocations;
PAG E 24 | I S S U E 61 | SECOND QUARTER 2021 | ICMAGROUP.ORG
