Preventing False Subscription... Mandatory Verification of Payment Ability for Institutional Investors During IPO Subscription

Underwriters of initial public offerings (IPOs) must allocate public offering shares only after verifying the subscription payment capability of institutional investors.

On the 26th, the Financial Services Commission approved amendments to the Financial Investment Business Regulations at its 8th regular meeting. The amendments reflect follow-up measures to enhance the soundness of the IPO market, including preventing fictitious subscriptions announced last December, as well as rationalizing risk values for carbon emission permits.

Previously, concerns were raised that for stocks expected to yield capital gains upon listing, institutional investors distorted the public offering market by applying for quantities exceeding their actual payment capability during demand forecasting, resulting in fictitious subscriptions.

The amendment stipulates that if underwriters allocate public offering shares without verifying subscription payment capability according to the standards set by the Korea Financial Investment Association, they may be fined for engaging in unsound business practices.

Once the Korea Financial Investment Association revises the regulations on securities underwriting, including standards for verifying subscription payment capability, by the end of this month, the amendment will apply to IPOs submitting securities registration statements from July onward.

Additionally, at the same meeting, measures were taken to ease the burden on securities firms handling carbon emission permits to activate trading. Securities firms are required to reserve capital according to risk values set by the Net Capital Ratio (NCR), but carbon emission permits have been classified as "other assets" without separate regulations, resulting in a risk value of 32%.

Accordingly, starting from the 30th, carbon emission permits will be classified together with energy and weather-related financial products and assigned a risk value of 18%.

Investor protection for derivative-linked securities was also strengthened. Following the amendment of the Capital Markets Act in May 2021, which allowed the delegation of derivative-linked securities sales to other securities firms, securities firms are now required to establish related internal control standards.

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