IPO Subscription

The SFC reminds investors that they should know their limits when subscribing for IPO shares.

As with all investments, investing in IPO shares involves risks. Investors are strongly advised to take into consideration the following when applying for IPO shares:

• Subscription on margin involves costs – Investors have to pay interest for the loan extended to them, regardless of the quantity of shares that is allotted eventually. Investors may be allotted no shares at all but still have to pay the interest.

• Shares allotted may be more or fewer than anticipated – The quantity of shares that an investor will be allotted is unknown at the time of application. If an investor gets fewer shares than he expects, he may not be able to recover the interest expense by selling the allotted shares. On the other hand, the investor may be allotted more shares than he can afford to take.

• Share price can go up and down – An investor could incur a loss on his IPO investment if he is unable to sell the allotted shares at a price higher than the subscription price plus his transaction costs and interest expense.

So, it is very important that investors understand how much risk they can take and not commit to a subscription beyond their means when applying for shares in an IPO.

In addition, investors should always know what they are buying. The SFC’s investor leaflet "Questions to Ask Before Investing in a Stock" published yesterday provides a list of questions for investors’ consideration and helps them make an informed investment decision. The leaflet is available at the SFC office, on the SFC website and at the Consumer Advice Centres of the Consumer Council.

Ends