KOFIA Revises Acquisition Business Regulations to Enhance IPO Market Soundness

The Korea Financial Investment Association announced on the 28th that it has revised the "Regulations on Securities Underwriting Business, etc. (hereinafter referred to as the Underwriting Business Regulations)" and the "Model Standards for Lead Manager Duties, etc. (hereinafter referred to as the Model Standards)" through the resolution of the Self-Regulatory Committee to enhance the soundness of the IPO market.

The main content of the revised Underwriting Business Regulations is the method for lead managers to verify the payment capacity of subscription funds to eradicate fictitious subscriptions. It involves confirming by receiving from institutional investors the total asset amount of individual entrusted properties participating in demand forecasting for each participation case, such as own capital and demand forecasting.

Disadvantages will be imposed on institutional investors who participate in demand forecasting beyond their payment capacity. The revisions include extending the preferential allocation of public offering shares for venture capital investment trusts and high-risk high-return investment trusts, expanding the preferential allocation volume for high-risk high-return investment trusts related to KOSDAQ stocks (from 5% to 10%, while reducing venture capital investment trusts from 30% to 25%), and partial adjustments to sanctions regulations for insincere demand forecasting related to violations of mandatory holding commitments.

Meanwhile, the main contents of the revised Model Standards include ▲ extending the demand forecasting period (at least 5 business days) to enhance the substance of demand forecasting ▲ establishing principles for preferential allocation of mandatory holding commitments to expand the practice of mandatory holding by institutional investors ▲ preparing grounds for imposing disadvantages on institutions that do not specify prices to strengthen the price discovery function of demand forecasting.

The items related to verifying payment capacity and enhancing the soundness of the IPO market in the revised Underwriting Business Regulations and Model Standards will be applied from the first submission of securities registration statements after July 1 of this year. Changes in the allocation ratio of venture capital investment trusts and high-risk high-return investment trusts for KOSDAQ market IPOs and public offerings will be applied from the first submission of securities registration statements after January next year.

The Korea Financial Investment Association plans to hold briefing sessions for lead management practitioners and distribute practical Q&A materials to improve industry understanding of the revisions to the Underwriting Business Regulations and Model Standards.

Lee Bongheon, Head of the Self-Regulation Department at the Korea Financial Investment Association, said, “We expect this institutional change to be an opportunity to enhance the soundness of the IPO market and restore investor confidence,” adding, “We believe that the bubble in the IPO market will somewhat disappear in the future, and we ask that this be understood as a process of market normalization.”

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