Hong Kong Regulator Probing Book-building for Equities, Bonds
HONG KONG (Reuters) - Hong Kong's securities regulator is reviewing how banks build books for equity and debt capital raisings, one of the city's top regulators said on Monday, warning about potential conflicts of interest.
So-called "books" are built by banks as they take in orders for equity deals such as initial public offerings, or for bond sales, by companies. The book is the basis from which bankers and their clients allocate shares or bonds to investors in each deal.
The move comes as the process of selling securities is coming under scrutiny elsewhere in the region. Last year Australian authorities filed criminal charges against ANZ and the local units of Citigroup and Deutsche Bank and six senior bankers over the sale of A$3 billion ($2.17 billion) in ANZ shares in 2015.
Hong Kong's Securities and Futures Commission conducts inspections when it identifies trends, emerging risks or compliance lapses that it feels may require a regulatory response.
"If [underwriting syndicates] submit fictitious and inflated orders or provide inducement to investors, they would undermine the discovery of IPO prices, the fair allocation of securities to subscribers, and ultimately investor confidence in the integrity and transparency of the capital market," Julia Leung, deputy chief executive of the SFC, told the regulator's annual compliance forum.
Last year the SFC published the findings of a review into investment banks' activities when sponsoring, or leading, IPOs. In March of this year, it banned UBS from sponsoring IPOs for a year, while fining it and its Wall Street rivals a combined $100 million for due diligence failings.
Leung also said on Monday that the SFC was conducting a review into licensed corporations' cybersecurity practices, and was looking at spreads charged by licensed corporations when trading bonds.
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