Competitive Landscape Disclosure Standards: How to Describe Your Industry Position

The Hong Kong Stock Exchange’s (HKEX) Listing Division has intensified its scrutiny of industry position and competitive landscape disclosures in IPO prospectuses, driven by a 2024-2025 wave of enforcement actions against misleading market share claims. In its latest guidance, the SFC’s Corporate Finance Division (December 2024) specifically flagged three prospectuses where applicants cited undefined “leading” or “top-tier” status without referencing a recognised third-party report or a clear methodology. The consequence was a delay of the listing timetable by 6-8 weeks for two of these applicants, as the Exchange required a re-drafting of the “Industry Overview” section under HKEX Listing Rules Chapter 11 (Contents of Prospectus) and Appendix A1 (Disclosure Standards). For CFOs and company secretaries preparing for a Main Board or GEM listing in 2025-2026, this is no longer a compliance checkbox but a material risk to the IPO timeline. The following analysis outlines the precise standards the Exchange expects, how to structure a defensible competitive landscape section, and the common pitfalls that trigger re-submissions.

The Regulatory Framework: What the Exchange Expects

Rule 11.07 and the “Materiality” Threshold

HKEX Listing Rule 11.07 requires a prospectus to contain “all information necessary to enable an investor to make an informed assessment” of the issuer’s activities, assets, and liabilities. This directly covers the competitive landscape. The Exchange’s internal review guidelines (updated Q1 2025) now treat any statement of market position as a “material representation” under Rule 11.07(2), meaning the burden of proof shifts to the sponsor to demonstrate the claim is both verifiable and not misleading.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (2024 edition) paragraph 17.6 further requires sponsors to “exercise reasonable due diligence” on any third-party data used in a prospectus. In practice, this means the sponsor must independently verify the source report’s methodology, sample size, and publication date. A 2023 Frost & Sullivan report, for example, was rejected by the Listing Division in a case involving a biotech applicant because the report’s definition of “market share” included unaudited revenue projections from the applicant itself, violating the requirement for independent, auditable data under SFC Guidelines for the Regulation of Automated Trading Services (2024).

Appendix A1: The “Source and Basis” Requirement

Appendix A1 of the Main Board Listing Rules explicitly states that any market share or ranking data must disclose the “source and basis of calculation.” The Exchange has interpreted this strictly since a 2024 enforcement action against a consumer goods issuer (HKEX Decision Notice LD-2024-03). In that case, the issuer claimed a “25% market share in the premium segment” but cited a proprietary survey of 200 respondents without disclosing the survey’s confidence interval or margin of error. The Exchange required a full re-publication of the prospectus, adding 12 working days to the timeline.

The practical standard now is: (1) name the third-party research provider (e.g., Euromonitor, Frost & Sullivan, iResearch); (2) state the publication date and version; (3) disclose the methodology (sample size, geographic scope, revenue vs. volume basis); and (4) include a clear disclaimer that the data “has not been independently verified by the Exchange or the Sponsor.” This language must appear in the same paragraph as the market share figure, not buried in a footnote.

Structuring the Competitive Landscape Section

H3: The “Positioning Pyramid” Framework

The most defensible structure for a Main Board prospectus is a three-tier “positioning pyramid” that moves from broad industry context to specific competitive advantages. The first tier defines the relevant market with precise boundaries. For a fintech applicant, this means specifying whether “market share” refers to transaction value (HKD), number of users, or total addressable market (TAM) in Hong Kong versus Greater Bay Area. A 2025 HKEX staff paper on fintech IPOs noted that the most common deficiency was an ambiguous market definition, such as “the Chinese payment market” without clarifying whether it included WeChat Pay and Alipay volumes.

The second tier identifies the top 3-5 competitors by a single, consistent metric (e.g., revenue for the most recent fiscal year ended 31 December 2024). The issuer must rank itself relative to these competitors using the same metric. If the issuer claims “top 3 in the Hong Kong SME lending market,” the prospectus must list the top 3 by loan book size (HKD), name each competitor, and cite the source—typically a central bank report (HKMA Monthly Statistical Bulletin, March 2025) or a recognised industry association (Hong Kong Association of Banks, 2024 Annual Survey).

The third tier is the “competitive advantage” statement, which must be quantitative, not qualitative. Instead of “we have a superior distribution network,” the issuer should state “we operate 47 physical branches across Hong Kong, compared to the industry average of 22 per competitor (source: HKMA Branch Census 2024).” The SFC’s Guidance Note on Prospectus Disclosure (2024) explicitly warns against “puffery” language such as “best-in-class” or “leading-edge” unless the issuer can demonstrate a specific, measurable benchmark (e.g., “lowest cost-to-income ratio among peers at 38.2% versus peer average of 45.7%”).

H3: Handling Negative Data and Risk Factors

A frequent oversight is the failure to disclose competitive weaknesses. HKEX Listing Rule 2.03 requires “fair and balanced” disclosure, which the Exchange interprets as requiring a discussion of material risks to market position. A 2024 case involving a logistics company (HKEX Decision Notice LD-2024-07) saw a 4-week delay because the prospectus omitted the fact that the issuer’s top competitor had just opened a new automated warehouse with 3x the capacity, a fact that was publicly available in the competitor’s press release.

The recommended approach is a dedicated “Competitive Risks” subsection within the “Industry Overview” chapter. This must include: (1) any known market share decline over the past three financial years (e.g., “our market share fell from 12.4% in FY2022 to 10.1% in FY2024, primarily due to the entry of two new competitors”); (2) regulatory changes that could alter the competitive landscape (e.g., HKMA’s Guidelines on Virtual Banking (2024) allowing new entrants); and (3) technology substitution risks (e.g., “the adoption of AI-driven credit scoring by competitors may reduce our cost advantage by 15-20% within 24 months, based on a 2025 Boston Consulting Group report”).

Common Pitfalls and How to Avoid Them

H3: The “Self-Referencing” Trap

The single most common reason for a prospectus re-submission is the use of self-generated or unverified data. A 2025 SFC enforcement report noted that 11 of 18 IPO prospectuses reviewed in Q1 2025 contained at least one claim based on the issuer’s own internal data without independent verification. The Exchange now requires that any data generated by the issuer (e.g., “we process 1.2 million transactions per month”) must be audited by the sponsor or a third-party accountant under HKSA 3000 (Assurance Engagements Other Than Audits or Reviews of Historical Financial Information).

For market share claims, the only safe approach is to commission a third-party research report from a recognised provider. The cost is typically HKD 150,000-300,000 for a full industry overview, but the alternative—a 6-8 week delay—far exceeds that cost in opportunity loss. The report must be commissioned at least 8 weeks before the A1 filing to allow time for sponsor verification and Exchange review.

H3: Overclaiming “Market Leadership” Without a Clear Definition

The term “market leader” is almost never acceptable without a precise, auditable definition. The Exchange’s internal guidance (2025) states that “market leader” implies the largest market share by revenue or volume in a clearly defined market. If the issuer is not the largest, the term cannot be used. Even “top 5” requires a ranking list with named competitors and their respective shares.

A 2024 case involving a health tech company illustrates the risk. The issuer claimed “top 3 in the Hong Kong telemedicine market” but defined the market as “online consultations only,” excluding the dominant player’s offline-to-online model. The Exchange required a redefinition of the market to include all telemedicine services, which dropped the issuer from “top 3” to “7th.” The prospectus was re-filed with the corrected ranking, and the issuer’s valuation was adjusted downward by 12% in the subsequent placing.

H3: Ignoring the “Forward-Looking” Restriction

Projections of future market share are generally prohibited under HKEX Listing Rules unless accompanied by a clear basis and significant cautionary language. Rule 11.17 restricts profit forecasts and asset valuations, and the Exchange has extended this to market share projections. A 2025 guidance note from the SFC’s Corporate Finance Division explicitly states that “any statement regarding expected future market share must be accompanied by a detailed sensitivity analysis and a clear statement that the projection is not a profit forecast.”

The acceptable approach is to present historical market share data (e.g., “our market share grew from 8.2% in FY2022 to 11.5% in FY2024, according to Frost & Sullivan’s 2025 report”) and then discuss qualitative factors that could affect future position, without quantifying the impact. For example: “the planned expansion of our sales team from 45 to 80 representatives by December 2025 may improve our competitive position, but there is no assurance that market share will increase correspondingly.”

Actionable Takeaways for CFOs and Company Secretaries

1. Commission a third-party industry report from a recognised provider (Euromonitor, Frost & Sullivan, or a similarly audited source) at least 8 weeks before the A1 filing, and require the sponsor to independently verify the methodology under SFC Code of Conduct paragraph 17.6.

2. Define the relevant market with precise geographic, product, and time boundaries in the first paragraph of the “Industry Overview” section, and use a single consistent metric (revenue, volume, or users) for all competitive rankings.

3. Disclose any competitive weaknesses or market share declines in the past three fiscal years in a dedicated “Competitive Risks” subsection, citing specific competitor actions or regulatory changes with named sources.

4. Avoid all qualitative superlatives (“leading,” “best-in-class,” “top-tier”) unless accompanied by a specific, auditable ranking with named competitors and a clear methodology disclosed in the same paragraph.

5. Include a forward-looking disclaimer in every competitive projection, and never quantify expected future market share without a detailed sensitivity analysis and explicit SFC guidance compliance.