THE 40-50-10 IPO: Regulatory Allocation Floors and Contractual Corner Solutions in Hong Kong

Abstract

Hong Kong’s August 2025 IPO reform introduced a minimum 40% non-cornerstone bookbuilding allocation and a choice between a clawback-based public tranche and a no-clawback alternative. Using prospectus-level coding for all 161 operating IPOs in the first post-reform year, together with exact final allocation compositions for 146 issues, we document rapid coordination on two nested corners. Mechanism B became the de facto standard outside the specialist-technology regime: 139 of 141 non-Rule 18C offerings selected it, and every Mechanism B issuer began with the 10% minimum public tranche. Among Mechanism B offerings with cornerstone investors, 32 of 112 chose an initial 40–50–10 split across non-cornerstone bookbuilding, cornerstone, and public tranches. Its incidence rises from 10.7% in the smallest proceeds quartile to 60.7% in the largest. The evidence shows how a regulatory menu can generate a market standard and, within it, a size-related contractual corner. The design is descriptive rather than a sharp regression discontinuity.

Author abstract from the research manuscript. Typography and line breaks have been normalized; the linked source may show a different manuscript version.