Licence? What licence?

In the latest Clawback, columnist Philippe Espinasse turns his focus to hiring practices in the region's equity capital markets.

  • By GlobalCapital
  • 04 Sep 2018
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A friend of mine, now retired from investment banking and working in private equity, was recently interviewing with one of China’s behemoth institutions in Hong Kong, with a view to potentially returning to his old beat, that is equity capital markets.


The interview was going well until it was made clear to him that, in order to get the job, he would first have to bring the firm “a block trade”. It’s not the first time I’ve heard something like this.

Never mind the arrogance: investment bankers were never choirboys and the only reason they exist in the first place is, after all, to make money — and lots of it.

But this particular way of doing business is strangely reminiscent of the arrangement seen in recent years for Chinese IPOs, where bookrunners were required to “bring a cornerstone investor” in order to stand any chance of ever being elevated by the client to global co-ordinator status — which itself obviously opens the doors to higher riches, and league table credit.

We all remember how badly that went: unwieldy mega-sized syndicates and investors extremely annoyed with the way these transactions were marketed to them by the lead banks.

More worryingly perhaps, is that bribing one’s way to a job by first securing an ECM transaction for the firm would likely require the individual in question to be licensed by Hong Kong’s Securities and Futures Commission.

Specifically, this would fall under one or more of the 10 types of regulated activities stipulated under Schedule 5 of Hong Kong’s Securities and Futures Ordinance (SFO).

For example, this could imply securing a type 6 licence (to advise on corporate finance), which is necessary when, among other things, one gives advice to a listed corporation or public company or a subsidiary of the corporation or company, or to its officers or shareholders, concerning corporate restructuring in respect of securities (including the issue, cancellation or variation of any rights attaching to any securities)”.

This is a pretty clear cut definition that would most likely apply to the case at hand.

This may also include a type 4 licence (dealing in securities), pursuant to which one can give advice on “whether, which, the time at which, the terms or conditions on which, securities should be advised or disposed of”. Although this type of licence is primarily aimed at research analysts, pitching a block trade to a corporation might well involve some of the above (although one might possibly be able to claim it was incidental).

Finally, this might perhaps also require a type 1 licence (dealing in securities), with which one is allowed to “make or offer to make an agreement with another person, or induce or attempt to induce another person to enter into or to offer to enter into an agreement (…)

with a view to acquiring, disposing of, subscribing for or underwriting securities”.

Such a type 1 licence even provides for circumstances where, say, an individual introduces a person who is licenced for a type 1 activity (in effect an investment bank undertaking ECM activities) to another person for the purposes of making such transactions. There, however, exists an exemption when one solely deals with professional investors, which would perhaps provide the individual with an out.

The days of gentlemanly investment banking are definitely over. ECM firms used to bend over backwards to hire the best talent, which they would shower with sign-on bonuses and a host of other benefits. Now, it seems, one has to pay one’s way to work there — and it may not even be strictly legal.


Philippe Espinasse was a capital markets banker for almost 20 years and is now an independent consultant in Hong Kong. He is the author of “IPO: A Global Guide”, “IPO Banks: Pitch, Selection and Mandate”, and of the Hong Kong thrillers “Hard Underwriting” and “The Traveler”. His new book, “Cornerstone Investors: A practice Guide for Asian IPOs” was published in January 2018.


  • By GlobalCapital
  • 04 Sep 2018

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5 China Securities 7.41

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