Frequent Requests for Corrections in Securities Reports of KOSDAQ Listed Companies Due to Complex Transaction Procedures

[Asia Economy Reporter Lee Jung-yoon] It has been confirmed that the correction request rate for securities registration statements involving complex transaction procedures, such as mergers, has been relatively high over the past five years. The lower the involvement of securities firms, including underwriting responsibility, and the more the company is listed on KOSDAQ, the higher the correction request rate.

According to the "Status and Implications of Correction Requests for Securities Registration Statements over the Past Five Years" announced by the Financial Supervisory Service on the 27th, the average correction request rate over five years for securities registration statements related to mergers, splits, and comprehensive stock exchanges/transfers?which involve multiple target companies and relatively complex transaction procedures and content?was the highest at 36.2%. In contrast, the correction request rates for stock securities registration statements and bond securities registration statements were 9.8% and 0.8%, respectively.

Furthermore, the lower the involvement of securities firms, including underwriting responsibility, the higher the correction request rate. The average correction request rate over five years for securities registration statements under the underwriting agency method, where securities firms do not bear underwriting responsibility, was the highest at 32.6%, whereas the correction request rate for the firm commitment underwriting method, where the underwriter purchases all shares, was only 0.9%. Securities registration statements submitted by KOSDAQ-listed companies had a higher frequency of correction requests. The correction request rate for KOSDAQ-listed companies was 29.1%, while that for KOSPI-listed companies remained at 3.0%.

A total of 2,680 securities registration statements were submitted from 2017 to last year, among which 180 correction requests and 842 reasons for correction requests were recorded. Of the correction requests, 109 were for stocks and bonds, and 71 were for mergers and others. The annual correction request rate gradually increased to 9.7% in 2020 but decreased to 6.8% last year. In the case of initial public offerings (IPOs), correction requests for investor protection have been on the rise since 2020 due to an increase in special listings of deficit companies and a surge in individual investor inflows.

The reasons for correction requests were mostly related to investment risks such as new businesses and governance-related risks. For stock and bond securities registration statements, 72.2% of correction requests were related to investment risks such as business risks like new business progress, corporate risks like governance, and affiliated companies. For merger-related securities registration statements, correction requests arose for various reasons including investment risks (24.3%), basic merger details such as purpose, form, and schedule (28.2%), and the basis for calculating merger value (25.5%).

The Financial Supervisory Service reviews securities registration statements and requires the submission of corrected registration statements to protect investors when there are false statements or omissions of important matters, or when unclear descriptions could hinder reasonable investment decisions or cause significant misunderstandings. When a correction request is made, the relevant securities registration statement is considered not accepted, its effectiveness is suspended, and the correction request is announced on the electronic disclosure system website.

An official from the Financial Supervisory Service stated, "Investors need to thoroughly review the amendments in the corrected registration statements submitted after the correction request before making investment decisions," and explained, "We will maintain efforts to protect investors by ensuring thorough review of securities registration statements so that investment risks are fully recognized and investment decisions can be made accordingly." The official added, "To facilitate smooth corporate fundraising, we will strengthen communication with the market so that companies can faithfully prepare and disclose securities registration statements, including publishing a casebook of correction requests."

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