South Korea Introduces Cornerstone Investor Rules For IPOs To Curb Post-Listing Share Price Crashes
· Free Press Journal
South Korea's Financial Services Commission (FSC) will introduce a cornerstone investor framework for initial public offerings (IPOs) from Nov 13, aiming to reduce sharp share price declines following stock market listings.
As per a Bloomberg report, the government approved the framework on Tuesday alongside amendments to capital markets legislation.
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Under the new system, institutional investors agreeing to extended holding periods can receive share allocations before an IPO is priced.
The regulator expects commitments from long-term investors to strengthen confidence and discourage immediate selling after listing.
Samsung, SK Hynix Shares Plunge Over 7%, KOSPI Falls 6% As China's CXMT Claims Memory Chip BreakthroughThe FSC has prescribed staggered lock-in periods for cornerstone investors to prevent concentrated selling when restrictions expire.
Under the framework, 50% of an investor's allocation must remain locked in for six months, 30% for eight months and the remaining 20% for 10 months.
The changes follow disappointing performance among newly listed South Korean companies.
Shares of businesses that debuted in 2026 have declined by a weighted average of 32%, compared with a 38% gain in the benchmark Kospi index.
Data centre infrastructure company Elice Inc recorded a 32% fall on its first trading day, highlighting concerns surrounding IPO valuations.
The regulator also faces criticism over duplicate listings, where subsidiaries of publicly traded companies seek separate stock market listings.
SK Hynix abandoned a potential $10 billion US listing of its Solidigm subsidiary following objections from regulators and shareholders over possible dilution of minority investor interests.
The reforms will also permit underwriters to assess institutional investor demand before companies file registration statements or announce indicative price ranges.
Such discussions must take place under non-disclosure agreements, allowing underwriters to gather early feedback on valuations.
The FSC believes this approach could support more reasonable IPO pricing.
Hong Kong pioneered the cornerstone investor model, while India's IPO market uses anchor investors to support institutional participation.
The US permits preliminary discussions with professional institutional investors through its test-the-waters framework.
South Korea's new regulations seek to combine early investor commitments with phased share releases to limit post-listing volatility.