Norway’s Government Pension Fund Global (GPFG) has backed plans by the Hong Kong stock exchange to digitise its settlement process for IPOs, but said it should add more automation and future-proofing than proposed.

In a letter to Hong Kong Exchanges and Clearing (HKEX) in response to the operator’s “Concept Paper on Modernising Hong Kong’s Initial Public Offerings (IPO) Settlement Process” published on 16 November, Norges Bank Investment Management (NBIM) wrote: “We support the concept proposal, believing it to contribute meaningfully to the well-functioning of the Hong Kong equity markets.”

From the perspective of a global investor, NBIM – which runs the NOK11trn (€1trn) Oslo-based sovereign wealth fund – said there were considerable benefits in shortening the settlement period from an average of five days to one day, as the proposal promises.

“These include a reduction in market risk exposure and, where applicable, a reduced duration of capital lock up,” wrote Emil Framnes, NBIM’s global head of equity trading and transition, and Yazid Sharaiha of NBIM’s systematic and portfolio strategies department.

The pair said they applauded the design of the new Fast Interface for New Issuance (FINI) infrastructure, which was to replace a large number of bilateral, often manual processes with a streamlined interaction model with a central data repository.

But when it came to the ways that FINI could be accessed, NBIM said the paper proposed that API (application programming interface) access would initially be more limited than that available via web interface and file-based transmissions.

“We would recommend HKEX to specify a set of API for the full access functionality to FINI,” said NBIM, adding that this would encourage efforts towards even more efficiency by market participants through straight-through integration.

In another suggestion, Framnes and Sharaiha said FINI – which is planned to be compatible with the current regulatory regime around Hong Kong equity listings – should instead be designed with enough flexibility to allow for “alternative market practices” in future.

NBIM said it had almost NOK82bn invested in Hong Kong equities at the end of 2019, and had actively taken part in 182 IPOs globally in that year.

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