A bill introducing a "cornerstone investor system" to encourage long-term investment in the initial public offering (IPO) market passed a plenary session of the National Assembly. The Korea Financial Investment Association expressed a welcome.
According to political circles on the 23rd, an amendment to the Financial Investment Services and Capital Markets Act, centered on introducing the cornerstone investor system and allowing preliminary demand forecasting, was approved at a plenary session of the National Assembly that day.
The cornerstone investor system allows a portion of IPO shares to be pre-allocated to professional investors at the stage before filing a securities registration statement, on the condition of a lockup of at least six months. It was prepared to prevent situations in which share prices repeatedly surge and plunge on the first day of listing due to uncertain demand forecasting and short-term trading tendencies in IPOs.
Once the system is implemented, some say that the actual value of corporations will be reflected through advance investment agreements with professional investors, making it possible to set a reasonable offering price.
It is also expected that promising corporations will be able to secure quality long-term investors even before listing, improving the fundraising environment. The phenomenon of IPO prices falling sharply in the early days of listing may also be eased.
The pre-allocation for cornerstone investors will come not from the 25% retail investor tranche, but from a portion of the institutional investor allocation. This also addressed fairness issues between institutions and individual investors.
A preliminary demand forecasting system will also be introduced. This system allows the lead manager to gauge market demand before the indicative price band is finalized through the disclosure of a securities registration statement. Once the amendment takes effect, the lead manager will be able to assess market demand from the initial stage of setting the indicative price band and reflect it.
The amendment is scheduled to take effect six months after promulgation.
The Korea Financial Investment Association gave a positive response to the passage of the amendment.
Hwang Sung-yeop, head of the Korea Financial Investment Association, said, "The cornerstone investor system will serve as a catalyst for a 'K-IPO great transformation,' leading to reasonable offering price formation and soundly improving the structure of the domestic public offering market."
He added, "With the passage of the bill, I am confident that our capital market will leap forward into an advanced-economy model that provides corporations with ample growth capital and opens stable long-term revenue opportunities for investors."