Ants Receive More Allotments of IPO Shares

Outline of Financial Authorities' Amendment
About 20% of IPO Shares, 10% Allocation
Preferential Treatment and Lottery System for Small Subscriptions
Amendment Expected to Apply from BigHit

[Asia Economy Reporters Minji Lee and Eunmo Koo] Amidst the frenzy of IPO stock investments among individual investors, from SK Biopharm to Kakao Games, small investors will be able to receive a larger allocation of IPO shares. If the new standard is applied to Big Hit Entertainment (Big Hit), which is set to be listed on the KOSPI market next month with a scale of 1 trillion won, the investment participation opportunities for small investors are expected to expand further.

According to financial authorities on the 4th, the Financial Services Commission and the Korea Financial Investment Association have reportedly reached a broad agreement on revising the industry's self-regulatory rules governing IPO procedures, known as the "Regulations on Securities Underwriting Business, etc." The main content of this revision is to allocate about 10% of the approximately 20% of IPO shares reserved for general subscribers preferentially or by lottery to small subscribers. Currently, individual investors pay a deposit to securities firms and receive IPO shares according to the amount of the deposit. The revision aims to allow individuals who pay smaller subscription deposits to receive more IPO shares than before. The remaining 10% will maintain the current method.

To discuss the specifics of the 10% allocation, the Korea Financial Investment Association will form an industry task force (TF) to engage in detailed negotiations. The most frequently mentioned method is the lottery system used by Hong Kong, a leading IPO market. Hong Kong sets the individual allocation ratio at 10%, which is lower than Korea's ratio. However, based on the prohibition of multiple account subscriptions, it operates in a way that expands investment opportunities and fairness for investors by preferentially allocating to small subscribers and using a lottery system. The lottery system allocates shares to winners who pay a deposit above a certain amount up to a predetermined cap, significantly lowering the entry barrier for small investors compared to the domestic market. Additionally, the Financial Investment Association plans to promote other discussion points such as converting unsold employee stock ownership shares to individual investors and banning multiple accounts.

A senior official from the Korea Financial Investment Association stated, "We will establish measures to favor small investors, such as the lottery system, through industry consultations," adding, "Once opinions are gathered, we plan to propose the principles of allocation methods to the authorities."

Changes to the IPO subscription system are amendments within the Korea Financial Investment Association and are not as complex as amendments to the Capital Markets Act. If discussions with the industry determine an appropriate grace period before implementation, the time required for enforcement is expected to be short. A Financial Services Commission official said, "We cannot specify the timing yet, but we are collecting industry opinions through various channels," and added, "Since this is an amendment to the association's regulations, once an agreement is reached, implementation can proceed immediately."

The market is increasingly hopeful that the revision will apply to Big Hit, which is scheduled to be listed next month. Big Hit, which submitted its securities registration statement on the 2nd, is preparing for demand forecasting from the 24th to the 26th of this month and public subscription from the 5th to the 6th of next month. If the revision is applied to Big Hit, the volume allocated to individuals is expected to increase. Kakao Games, which attracted a record-high subscription deposit nearing 60 trillion won and recorded a fierce competition ratio of 1,524 to 1, allocated only one share to investors who subscribed for 2,000 shares with about 24 million won in deposits (at a public offering price of 24,000 won). However, if the lottery system is applied, even small investors with limited assets can receive shares up to a predetermined cap.

However, there are voices that building a subscription management system that recognizes multiple accounts as a single account will require some time. The prohibition of multiple accounts is a prerequisite for meaningful improvements in IPO share allocation methods for small investors. Currently, one investor can open accounts with multiple securities firms and apply for subscriptions per account. If multiple accounts are banned but a system to verify this is not established, it would effectively allow manipulative investments by splitting large subscriptions into smaller ones.

An industry official said, "Currently, even if one person has accounts with multiple securities firms, there is no integrated information, so it is difficult to know," adding, "Finding a way to recognize multiple accounts as one and implementing this systemically through IT solutions will take some time from a practical standpoint."

This content was produced with the assistance of AI translation services.