South Korea’s financial authorities are moving to address recurring post-IPO short-term selling and sharp price drops by overhauling rules aimed at making IPO pricing more rational and expanding medium- to long-term investment.
The Financial Services Commission said April 23 that amendments to the Capital Markets and Financial Investment Services Act, including the introduction of a cornerstone investor system, passed the National Assembly plenary session the previous day.
The amendments create a new cornerstone investor framework that allows a portion of IPO shares to be allocated in advance to institutional investors on the condition they agree to a lockup of at least six months. The goal is to secure long-term oriented institutions ahead of listing, reduce large sell orders immediately after trading begins and ease price volatility.
The FSC said shares allocated to cornerstone investors will be adjusted from the institutional tranche and will not affect the retail allocation ratio of 25%, seeking to minimize fairness concerns. It said it will also reflect internal control standards in subordinate rules to prevent conflicts of interest.
The amendments also introduce a pre-demand forecasting system, allowing underwriters to gauge institutional demand before filing a securities registration statement — a step that had been effectively unavailable due to legal concerns. The FSC said this should help underwriters reflect market demand from the early stage of setting an initial indicative price band, improving the reasonableness of IPO pricing.
Authorities said the changes target a persistent “quick-flip” pattern in the IPO market, where money seeking short-term gains has crowded into offerings, prices have surged on the first trading day and then fallen amid continued selling. IPO prices have also often been driven more by supply and demand than by companies’ medium- to long-term value, undermining market confidence, the FSC said.
The amendments are set to take effect six months after promulgation. The government said it will design detailed rules after collecting views from institutional and retail investors and underwriters.
Financial authorities said, “By introducing the cornerstone investor system, we expect to secure stable medium- to long-term institutional investors in advance, enhance trust in IPOs, and improve the ‘IPO horror stories’ such as steep post-listing price drops,” adding that they will “swiftly push ahead with revisions to subordinate regulations by gathering feedback from market participants.”
* This article has been translated by AI.
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