Monday, January 4, 2010


UC Rusal plans to raise up to US$2.6 billion through an IPO in Hong Kong later this month. Rusal would thereby become the first Russian company to list in Hong Kong, a coup of sorts for the controlling figure, Oleg Deripaska.

The HK regulator, the SFC, was rendered unhappy last month by this news, and it took under consideration two possible measures:

1. Permitting only an institutional placing, i.e. no public offer tranche, and
2. Requiring that minimum transaction size for automated trading be set at a very high level to deter smaller retail investor involvement.

It opted for the latter. Rusal can only sell the IPO to investors who subscribe for at least HK$1m worth of shares. Following the listing, shares will be traded in board lots of at least 200,000 shares each.

If we entertain for a moment the theory that retail investors need to be protected, then wouldn't they have to be "protected" from the secondary market, too? Anyone who can make a bad decision to buy in an IPO context could also make a bad decision to buy the next day! With a minimum lot size defined by share rather than dollar amount, it isn't at all clear how that will shake out.

My own view of course is that investors have to be allowed to make their own decisions, and [even!] retail investors are generally better at knowing what to do with their own money than regulators are at knowing how to 'protect' them.

Indeed, from more than one perspective, the proposed limits would make things trickier for retail investors , not safer at all.

I'm told the prospectus makes a fascinating document, though I have myself yet to dig into its 1,141 pages. If any of my readers wants to study that material, here it is. Go wild.

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