"Opportunities for Small Investors to Receive IPO Shares Expanded"... Introduction of Equal Allocation

[Asia Economy Reporter Eunmo Koo] From the end of this month, opportunities for small investors to be allocated IPO (Initial Public Offering) shares will be expanded.

On the 18th, the Financial Services Commission announced the "Plan to Expand Participation Opportunities for General Subscription Investors in IPO Public Offering Shares," stating that more than half of the shares allocated to general subscription investors will be distributed using an equal allocation method.

According to the announced improvement plan, more than half of the shares allocated to general subscription investors will be distributed using an equal allocation method, while the remaining shares will continue to be allocated proportionally based on subscription deposits, as before. The equal allocation method grants equal allocation opportunities to all subscribers who have paid at least the minimum subscription deposit. The underwriter can autonomously devise and apply the allocation method considering the expected subscription competition rate, expected public offering price, and characteristics of the company.

The financial authorities expect that this improvement plan will enable a more equitable allocation of public offering shares to general subscription investors than before. Until now, general subscriptions have allocated shares proportionally based on subscription deposits, which has been criticized for limiting participation opportunities for those with lower deposit capacity. However, to minimize under-subscription of the shares allocated to general subscription investors, post-adjustment of the allocation ratio between the two methods will be allowed.

Possible equal allocation methods to be applied in the future include the unified subscription method and the separated subscription method. The unified subscription method allows each subscriber to apply for their desired quantity as before, then allocates half of the shares allocated to general subscription investors equally among all subscribers, and the remaining half proportionally based on subscription demand as currently done. The separated subscription method divides the shares allocated to general subscription investors into two groups, A and B, each accounting for half. Subscribers choose either group A or B to subscribe. Allocation for group A is done by lottery, equal allocation (1/n), or other methods to assign the same amount to winners, while group B is allocated proportionally based on subscription demand.

This improvement plan also increases the allocation volume for general subscription investors. First, up to 5% of the shares that remain unsubscribed by the employee stock ownership association can be allocated to general subscription investors. Previously, the employee stock ownership association was given priority allocation within 20% for both the KOSPI and KOSDAQ markets, but frequent under-subscription occurred, and the remaining shares were allocated to institutional investors. Under the new plan, the underwriter will decide the allocation volume for general subscription investors in consultation with the issuing company, considering the specific circumstances of the employee stock ownership association's under-subscription, within a 5% limit.

The priority allocation volume for high-yield funds, previously 10%, will be reduced to 5%, and the reduced 5% will be additionally allocated to general subscription investors. The priority allocation system for high-yield funds holding 45% or more of BBB+ or lower rated bonds and KONEX-listed stocks, and 60% or more domestic bonds, was originally scheduled to expire at the end of this year. However, considering that the priority allocation for KOSDAQ venture funds is valid until 2023, it will be maintained for three years until 2023.

Procedures for subscription and allocation will also change, including restricting duplicate subscriptions through multiple underwriters (lead managers) and requiring disclosure of investment risks in subscription advertisements. Previously, when multiple underwriters existed for an IPO, duplicate subscriptions through several securities firms were possible, but going forward, a separate IT system will be established to prohibit duplicate subscriptions. The IT system will be built through Korea Securities Finance Corporation, which handles subscription deposit tasks, and the Capital Market Act Enforcement Decree will be amended to provide grounds for collecting and using personal information so that securities firms can provide subscription information of general investors to the system.

Additionally, subscription advertisements will apply multiple allocation methods, including wording that allocation results may differ depending on the method and investment risks, to strengthen investor protection procedures. Furthermore, securities registration statements will include subscription allocation principles to prevent investor confusion due to the application of multiple allocation methods for general subscription investors.

This improvement plan will be applied from the first securities registration statement filed after the amendment of the Korea Financial Investment Association's "Regulations on Securities Underwriting" at the end of this month. Also, the allocation of up to 5% of the employee stock ownership association's unsubscribed shares and the application of the equal allocation method will be applied from securities registration statements submitted next month, and the 5% allocation of the reduced high-yield fund portion will be applied from securities registration statements submitted in January next year.

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