Basic knowledge of new shares

1. One-Lot Allotment Rate

One-Lot Allotment Rate is the probability of being allotted when subscribing to one lot of stock IPO.


2. "Do a Header"

According to regulations, one can subscribe to up to a half of the total shares of an IPO (without claw-back). Subscribing the maximum quantity is referred to as "do a header".


3. Group A/B

A subscription with an amount less than or equal to 5 million is classified into Group A, while that with more than 5 million is classified into Group B.


4. Cornerstone Investors

Cornerstone investors refer to institutional investors who subscribe to company stocks as strategic investors before stock IPO and accept a lock-up period for 6 to 12 months. They are mainly banks, insurance companies, hedge funds, sovereign wealth funds, pension funds, and other large institutional investors as well as large enterprise groups, well-known magnates, and their affiliated companies.


5. Sponsors

A sponsor must be a company or authorized financial institution licensed by and registered with the Hong Kong Securities and Futures Commission (SFC). The sponsor is responsible for assisting companies with IPO applications. It should provide professional advice on IPO to the company concerned and assist it in handling various matters related to an IPO. At the same time, it is responsible for the communication between the company to be listed, the Exchange, the SFC and various professional intermediaries. At the operational level, the sponsor should submit the official listing application form and all related documents to the Stock Exchange. The sponsor should ensure that all relevant important information has been fully and accurately disclosed in the prospectus, and that all directors of the company to be listed understand their responsibilities as directors of a listed company.


6. Underwriters

An underwriter refers to a securities institution that exclusively underwrites or leads an underwriting syndicate in the issuance of stocks. Abroad, stock underwriters are generally served by reputable and powerful merchant banks (UK), investment banks (US), and large securities companies.


7. The Greenshoe

The Greenshoe Mechanism is the nickname for the over-allotment option system, also known as the Green Shoe Option.

It refers to an option granted by the issuer to the lead underwriter within 30 days after the stock is listed. The lead underwriter can choose to issue up to 15% more shares than the predetermined number at issuance price.

If the trading price of the stock is lower than the issuance price after listing, the lead underwriter can use the funds obtained from the prior selling of shares (investors’ funds for subscribing over-allotted shares) to purchase from the secondary market at a price no higher than the issuance price and then distribute the shares to investors who subscribed the over-allotted shares. If the trading price of the stock is higher than the issuance price after listing, the lead underwriter will ask the issuer to issue 15% more shares, which will then be allocated to investors who have subscribed in advance. The funds from the additional issuance of new shares belong to the issuer, and the additional shares issued will be included in the number of total shares issued.