Preventing Sharp Stock Drops After IPO... Financial Services Commission to Introduce Cornerstone Investor System

The cornerstone investor system will be introduced in six months to prevent sharp price declines immediately after IPO listings. The cornerstone investor system allows institutional investors to receive advance allocations of IPO shares, in exchange for a mandatory holding period of at least six months.

The Financial Services Commission announced on April 23 that an amendment to the Capital Markets Act containing these measures has passed the National Assembly plenary session. The amendment will take effect in six months.

Under the amendment, the cornerstone investor system will be introduced. Shares allocated in advance will be assigned from the institutional investor portion, ensuring that there is no equity issue between institutional and retail investors.

The advance demand forecast system will also be permitted. This will allow underwriters to gauge market demand before the indicative IPO price band is determined and disclosed in the securities registration statement. As a result, the IPO price can be set more rationally, reflecting actual market demand.

The cornerstone investor system and the advance demand forecast system have been introduced to address the problem of stock prices surging immediately after listing and then continuously declining. The domestic IPO market has experienced excessive short-term profit-seeking, with a rush of funds immediately after listing followed by continued selling pressure. This has led to criticism that IPO prices do not reflect the company’s mid- to long-term value.

The Financial Services Commission plans to gather opinions from institutional investors, retail investors, and underwriters to design detailed systems, including the allocation cap for cornerstone investors and standards for conflict-of-interest prevention mechanisms.

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