Dubious IPO orders: the SFC tells placing desks to reject what they cannot explain

On 13 October 2026 the SFC issued Circular 26EC62 to licensed corporations carrying out sponsor work and engaging in bookbuilding and placing activities. It has two halves. The first updates the SFC’s view of sponsor resources after its January circular. The second, which matters more to a placing desk, describes dubious arrangements that may create suspicious orders or artificially inflate demand for IPO shares.

The arrangements it describes include undisclosed deals in which a listing applicant funds investors’ subscriptions or guarantees their returns, and placing shares concentrated among designated investors who have undisclosed arrangements about their holdings or post-listing trading. It gives a non-exhaustive list of red flags, among them:

• substantial payments, prepayments, loans or investments by the applicant in favour of investors or their connected parties, particularly shortly before listing;
• investors who appear related to the applicant, including those it, its directors or its shareholders introduced;
• the applicant directing CMIs to approach or allocate shares to particular investors, or an investor mix inconsistent with the agreed allocation strategy;
• unusual subscription orders, including substantial orders shortly before the close of the order book, or sizes out of line with the investor’s financial profile;
• arrangements that may conceal the ultimate investors, such as derivatives with returns guaranteed by the applicant or related parties, or multiple investors with accounts operated by the same person or sharing a correspondence address.

On expectations, the SFC says sponsors, OCs and CMIs should assess the red flags individually and collectively, make further enquiries, document their enquiries, assessments and conclusions, and not ignore a red flag merely because the IPO may otherwise proceed. OCs and CMIs shall reject any suspicious orders where concerns remain unresolved, and should report dubious arrangements to the SFC and SEHK. Firms involved in IPOs that raise such concerns may face enhanced scrutiny, including more in-depth inspections.

• Who’s in scope: sponsors, OCs and CMIs in IPOs and placings. The sponsor half also applies to Principals and their sponsor firms.
• What to do: check your order-handling and escalation procedures against the red flags, and make sure the enquiry and its outcome are written down.
• By when: no date is given. The expectations apply to IPO and placing work as it happens.