Going forward, "cornerstone investors" who receive advance allocations of initial public offering (IPO) shares must hold the stock for up to 10 months. Only institutions with equity capital or entrusted assets at least 20 times the subscription amount can participate as cornerstone investors.
The Financial Services Commission said on the 30th it will preannounce legislation for the Enforcement Decree of the Financial Investment Services and Capital Markets Act and the Regulation on Issuance and Disclosure of securities to introduce pre-demand forecasting and a cornerstone investor system in line with the act's enforcement in Nov. Preannouncement will run through Sept. 8, and amendment procedures will be completed by Nov. 13 to match the enforcement schedule of the Financial Investment Services and Capital Markets Act.
The pre-demand forecasting system identifies in advance the demand for offering price and quantity from institutional investors before submitting a securities registration statement. It is expected to help set an appropriate offering price. Institutional investors eligible to participate in pre-demand forecasting are general private collective investment business entities and investment discretionary business entities with total entrusted assets of at least 30 billion won. The existing rule that lowers the eligibility threshold to 5 billion won after two years from registration will not apply.
The cornerstone investor system allocates a portion of the institutional allotment in advance on the condition of long-term holding. Of the allocated amount, 50% cannot be sold for six months, 30% for eight months, and the remaining 20% for 10 months. This measure aims to prevent a concentration of sell orders by avoiding a single cliff when lockups are lifted.
There will also be differentiation by market. In the KOSPI market, institutional investors can allocate up to 20% of the total to cornerstone investors, and up to 30% in the KOSDAQ market. For retail investors, the caps are 10% and 20%, respectively.
To participate as a cornerstone investor, in addition to pre-demand forecasting eligibility, an institution must hold equity capital or entrusted assets equal to 20 times the subscription amount. To ensure participation opportunities for small and midsize institutions, a relative standard based on subscription size, rather than an absolute amount, was applied.
However, stakeholders such as controlling shareholders and related parties cannot enter into contracts. Acts of giving or receiving direct or indirect benefits as a condition of the contract are also prohibited.
The Financial Services Commission (FSC) expects the system to help build investor confidence in IPOs and to ease the so-called "IPO horror story" problem, in which share prices plunge due to a sharp wave of selling immediately after listing.