New Stock Listing IPO Must-Read Guide: Hong Kong and US Stock Conditions, Processes, and Investment Risks Overview

You often see news about a company initiating IPO listing procedures, but do you really understand what an IPO is? From corporate financing to investor opportunities, what does an IPO listing mean? What are the requirements for listing in Hong Kong stocks and U.S. stocks? Is investing in new shares an opportunity or a trap? This article provides a comprehensive breakdown.

What exactly is an IPO? The essentials of going public

IPO stands for Initial Public Offering, which in Chinese is “首次公開發行”. Simply put, it is the process of a private company issuing shares to the public for the first time and transforming into a publicly listed company.

Why do companies choose to go public via an IPO? The reason is simple—money. In the early stages, startups rely on founders’ investments to survive, but to grow bigger and stronger, initial capital alone is not enough. As business expands, financing needs grow, and external funding becomes an inevitable choice. That’s when going public comes into play.

Through an IPO, companies can achieve a three-way win:

• From the company’s perspective: Direct access to the public market for financing, raising funds for debt repayment, expansion, and brand upgrading
• From shareholders’ perspective: Original investors can cash out or partially realize returns, turning their “paper wealth” into real cash
• From investors’ perspective: Hundreds of thousands of retail investors get the opportunity to buy shares of quality companies and participate in corporate growth dividends

In short, an IPO is a transition from private to public ownership, a necessary step for a company’s growth to a certain stage.

Hong Kong Stock IPO: Process and entry requirements

Hong Kong Stock IPO Process

The IPO process in Hong Kong stocks generally involves six major steps:

1. Formation of the team — Appoint sponsors, accountants, legal teams, and other professional intermediaries who will guide the entire process.

2. Due diligence — Intermediaries conduct comprehensive reviews of the company’s business, assets, and equity, while simultaneously performing audits and drafting the prospectus and legal opinions.

3. Restructuring and adjustments — If needed, restructure business, assets, and equity, and optimize corporate governance to meet listing requirements.

4. Submission for review — Submit the listing application to the China Securities Regulatory Commission (CSRC) and the Hong Kong Stock Exchange (HKEX). After acceptance, the prospectus is published on the HKEX website, and regulators’ inquiries are addressed.

5. Roadshow and pricing — Conduct non-deal roadshows, investor meetings, and international roadshows to determine a reasonable issue price.

6. Official listing — Conduct the public offering in Hong Kong, complete the issuance, and list the shares.

Hong Kong Stock IPO Financial Requirements

Taking the Main Board as an example, a company qualifies if it meets any one of the following conditions:

Meeting any one of these criteria allows a company to pass the Hong Kong IPO review.

U.S. Stock IPO: Process and entry requirements

U.S. Stock IPO Process

The U.S. IPO process also follows six steps:

1. Find underwriters — The company first engages an investment bank team as underwriters, who will lead the IPO process.

2. File with the SEC — Collaborate with underwriters to submit a registration statement to the U.S. Securities and Exchange Commission (SEC), including financial data, business plans, and use of funds.

3. Roadshow — In the two weeks before the IPO, the company’s team conducts nationwide presentations to promote the upcoming IPO shares to institutional and retail investors.

4. Pricing and listing — Determine a reasonable IPO price, select the stock exchange for listing, and have the SEC declare the registration statement effective.

5. Public disclosure — Publish the prospectus and application forms to the public within the planned date, and SEC announces the specific IPO listing date.

6. Trading begins — After the final IPO price is set, the underwriters allocate shares to investors, and the shares officially start trading on the exchange.

U.S. Stock IPO Financial Requirements

The requirements differ between the New York Stock Exchange (NYSE) and NASDAQ.

NYSE Three options:

• Total pre-tax earnings of at least USD 100 million over the past 3 fiscal years, with at least USD 25 million in the last 2 years
• Global market value of at least USD 500 million, revenue of at least USD 100 million in the past 12 months, and cash flow of at least USD 100 million over the past 3 fiscal years, with at least USD 25 million in the last 2 years
• Market value of at least USD 750 million, with revenue of at least USD 75 million in the last 2 fiscal years

NASDAQ Four options:

• Earnings before tax of USD 1 million in any two of the last three fiscal years, with shareholders’ equity of at least USD 15 million, and a public float of at least USD 8 million, with three or more active market makers
• Shareholders’ equity of at least USD 30 million and two years of operating history, with a public float of at least USD 18 million, and three or more active market makers
• Listed securities market value of at least USD 75 million, with a public float of at least USD 20 million, and four or more active market makers
• Earnings before tax and total assets of USD 75 million in any two of the last three fiscal years, with a public float of at least USD 20 million, and four or more active market makers

U.S. stock IPOs generally have higher financial thresholds than Hong Kong stocks, which explains why different companies choose different listing venues.

Investing in new IPO shares: Is it a gold mine or a trap?

Advantages of investing in newly listed IPO shares

Rare opportunity for low-cost entry

Many quality companies remain inaccessible to retail investors due to their private nature. However, as more companies go public through IPOs, retail investors finally have the chance to buy quality stocks at the lowest prices. The IPO issue price is often a discount deliberately offered by the company. Missing this price usually means subsequent stock prices rise quickly, and buying later will cost more.

Greater profit potential

Companies tend to launch IPOs when the market is bullish, meaning the overall environment is favorable. Also, high-quality companies going public at relatively low prices create a quick profit window for investors. Compared to buying mature stocks that have been listed for years, participating in IPOs often offers larger profit margins.

Relatively transparent information

Investors can obtain core company information through the prospectus. Large institutional investors do not have a significant information advantage over retail investors. Everyone starts on a relatively fair footing.

Risks of investing in new IPO shares

Speculative risks of new stocks should not be underestimated

If the company you choose is not worth investing in, going public won’t change its fundamental nature. When market bubbles burst or large institutional investors start selling off, retail investors tend to react slowly and suffer the heaviest losses because they lack the capital scale and execution speed of big players.

Positive factors are often already priced in

All positive factors of the issuing company may have been incorporated into the initial IPO price, limiting short-term gains for investors. The seemingly cheap IPO price already reflects the market’s optimistic outlook on the company’s future.

Final thoughts

The IPO market is becoming increasingly active, and more investors are paying attention to this field. Investing in new IPO shares offers opportunities for low-cost entry into quality companies but also carries the risk of chasing high and getting caught.

For investors, thorough research before participating in IPO investments is essential: understand the company fundamentals, review financial data, and assess industry prospects. Maintain a cautious attitude—avoid being blinded by short-term gains—and adopt a long-term holding, diversification, and timely adjustment strategy based on market changes.

In short, investing in IPO new shares can be a good opportunity for substantial returns, but only if you make rational decisions rather than blindly following the trend.