[Inside Chodong] Reconsider Applying Listing Day Volatility Expansion to SPACs

Soaring on Listing Day, Plunging Thereafter
Concerns Over Speculation and Investor Losses

It has been a month since financial authorities expanded the price fluctuation range on the day of listing to 60-400% in order to enhance the soundness of the initial public offering (IPO) market. Eight companies and four SPACs were listed. Although it is still early to evaluate the effects of the system improvement, if we look only at the fluctuation range of SPACs on the listing day, it is difficult to avoid criticism that it encourages speculation. Speculative funds rushed to buy SPACs, which are essentially no different from savings accounts before finding a merger target company, at prices two to three times their intrinsic value. Contrary to the authorities' intention to find an appropriate price early, SPACs commonly surged on the first day of listing and then plummeted from the next day.

On the 6th, Kyobo14 SPAC was listed. On the first day of listing, the stock price could move between 1,200 and 8,000 won based on the public offering price of 2,000 won. It started trading at 2,170 won, rose to 7,980 won, and closed at 6,810 won. The trading value and volume on the first day reached 566.1 billion won and 91.34 million shares, respectively. Considering that the number of listed shares is 4.2 million, this means there were more than 20 turnovers. The stock price that surged on the first day fell to the public offering price level within 14 trading days. It dropped more than 70% from the peak.

The stock price trends of DB Financial SPAC11 and SK Securities SPAC9 after listing were no different from Kyobo14 SPAC. DB Financial SPAC11 rose to 6,860 won on the first day of listing but has since fallen to 2,125 won. SK Securities SPAC9, listed on the 21st, rose to 7,150 won but dropped to around 2,200 won. It rose 93% on the first day of listing, hit the lower limit on the next day, and fell about 18% the following day.

As trading was active on the first day of listing, volatility was also high. There are criticisms that it has become a playground for speculative short-term funds aiming for high returns in a short period. According to the "Capital Markets and Financial Investment Services Act," SPACs are listed on the domestic stock market with the sole business purpose of merging with another company. They must complete the merger registration within three years. If they fail to merge within the set period, they dissolve and return the cash held to shareholders. Most SPACs deposit the funds raised through public offerings in financial institutions. This is why SPACs are considered no different from cash or savings accounts in the early stages of listing.

Stock market experts pointed out that it is hard to understand buying SPACs at two to three times the public offering price on the first day of listing. A financial investment industry official advised, "It is no different from buying two 1,000-won bills for 5,000 won," adding, "Using volatility on the first day of listing to seek high returns can quickly lead to losses."

Some express concerns about the behavior of investing in the stock market without considering intrinsic value and growth potential, but only using volatility as an investment factor. The number of investors trying to profit through ultra-short-term trading by taking advantage of increased volatility on the first day of SPAC listings is increasing. Judging investment decisions solely based on the probability of selling at a price higher than the purchase price does not align with the founding purpose of the stock market. While it may be a factor in the success of IPO subscription demand, it seems far from enhancing market soundness. The original meaning of an IPO is for growing companies to raise investment funds through listing and share the fruits of growth with investors.

This is not to criticize the system as a failure just one month after its improvement. If the IPO market gains vitality through expanded volatility on the listing day, it can have a positive impact on the economy. However, it is necessary to consider whether the volatility expansion plan should also be applied to SPACs.

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