Reform of IPO Allocation Method... How Much More Will Retail Investors Receive?

[Asia Economy Reporter Koh Hyung-kwang] Starting next month, the number of public offering shares allocated to individual investors is expected to increase. A plan to allocate the unsubscribed portion of employee stock ownership subscription shares during the Initial Public Offering (IPO) process to individuals is highly likely.

According to the financial investment industry on the 16th, the Financial Services Commission and the Korea Financial Investment Association are expected to announce an improvement plan for the public offering subscription system, including this content, as early as next week. Currently, the portion of public offering shares allocated to individuals is limited to 20% of the total new shares. In this situation, since the subscription and allocation methods are left to the discretion of the lead securities firms and issuers, the authorities believe that the allocation of public offering shares has excessively turned into a 'money game.'

The plan to allocate the unsubscribed portion of employee stock ownership subscription shares to individuals is being primarily considered. Currently, if there is an undersubscription in the employee stock ownership allocation, the corresponding shares are given to institutional investors. The authorities expect that if these unsubscribed shares are allocated to individuals, the individual allocation ratio of public offering shares will increase to over 25%.

There is also consideration to increase the basic individual allocation ratio up to a maximum of 30%. The preferential allocation benefit of 10% of public offering shares to high-yield funds expires at the end of this year, and the entire or part of this portion could be redirected to individuals. However, since the effect can be achieved by allocating the unsubscribed employee stock ownership shares to individuals rather than institutions, the direct expansion of the ratio is said to be flexible.

The improvement of the public offering share allocation system was publicized by Financial Services Commission Chairman Eun Sung-soo at a securities industry meeting on August 27. At that time, Chairman Eun said, "The current individual investor allocation method, where those who pay more subscription deposits receive more shares, favors high-net-worth individuals and needs improvement."

Measures such as banning subscriptions through multiple accounts and introducing a lottery system are also being promoted. The ban on multiple account subscriptions aims to prevent wealthy investors with ample funds from sweeping up public offering shares by subscribing simultaneously through multiple securities firm accounts. The lottery system allocates a portion of the individual allocation shares exclusively to small investors and is implemented in countries like Japan and Hong Kong.

The market expects the financial authorities to announce the amendment as early as next week and to immediately implement the revised system starting next month. The regulation change is subject to approval by the Korea Financial Investment Association's Self-Regulatory Committee. The committee usually meets once a month. If the agenda is submitted and deliberated at the committee and approved as originally proposed, it will be implemented after a three-week notice period. A financial authority official said, "It is true that we are reviewing improvement plans for the general subscriber allocation method for public offering shares during IPOs," but added, "The specific details and announcement timing have not yet been decided."

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