Explainer: How Mom-and-pop Investors Stumped Up A Record $3 Trillion For Ant Shares

The Shanghai portion of Ant’s IPO was heavily skewed toward strategic and institutional investors. Retail investors’ chance of buying Ant shares was further reduced by the participation of small hedge funds that were not qualified to participate in institutional bidding.

HOW DID RETAIL INVESTORS MANAGE TO STUMP UP $168 BILLION IN BIDS FOR THE HONG KONG LEG OF ANT’S IPO?

Unlike China, margin financing is a booming business in Hong Kong. Margin lending backed roughly half of the IPO’s Hong Kong retail demand, local media reported, helped by significant liquidity and interest rates as low as 0.4% for short-term credit – roughly 10 days in such cases.

HSBC Holdings PLC said it set aside HK$150 billion ($19 billion) of loans to support retail investor interest in Ant’s IPO, while BOC Hong Kong Holdings Ltd said it received over HK$100 billion in margin financing applications.

Some financial firms offered 20 to 30 times leverage to retail clients, banking industry insiders told Reuters.

HOW DO RETAIL INVESTORS USE MARGIN FINANCING AND HOW DOES IT WORK FOR LENDERS?

Retail investors in Hong Kong borrow heavily as larger bids boost the chance of share allocation, pinning their hopes of benefiting from a debut trading day pop. They pay back the loan soon after listing and pocket the gains.

Margin lending is lucrative for financial firms in Hong Kong as they earn interest on the loans irrespective of whether clients are allocated shares. They also benefit from opening new brokerage trading accounts.

Margin financing money gets locked up at a designated clearance bank. Given strong demand for Ant shares, the actual success rate for Hong Kong retail investors is relatively low, meaning brokers and banks will only have to lend a small portion of the margin financing applied for.

($1 = 7.7541 Hong Kong dollars)

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