South Korea's National Assembly Standing Committee on Political Affairs passed a bill on Wednesday to introduce a "cornerstone investor system" aimed at curbing the practice of selling newly listed shares for quick profits immediately after an initial public offering and encouraging long-term investment.
The committee approved an amendment to the Capital Markets and Financial Investment Business Act that establishes the cornerstone investor system. Under the system, issuers and lead underwriters recruit institutional investors before filing a securities registration statement and allocate a portion of IPO shares to them, with restrictions on selling for a set period.
The cornerstone investor system has been under review since 2018 amid concerns over South Korea's IPO market, which has been dominated by short-term trading. Institutional investors frequently sold shares shortly after IPOs, causing sharp price declines.
Under the new system, institutional investors participating as cornerstone investors will be prohibited from selling their shares for a minimum of six months after acquisition. The exact lock-up period, set at a minimum of six months, will be finalized through presidential decree. Violations of the lock-up period will incur a penalty of 100 million won ($72,000).
The IPO industry has welcomed the move, saying it will help foster a long-term investment culture. "The introduction of the cornerstone investor system was something the industry had been calling for," a committee official said. "It is expected to reduce losses suffered by retail investors from sharp post-IPO price drops and encourage participation by medium- and long-term institutional investors in IPOs."
In addition, the committee approved several other legislative amendments: a revision to the Fair Trade Act increasing the number of Fair Trade Commission (FTC) members from nine to 11; an amendment to the Framework Act on Administrative Regulations enabling retrospective review and overhaul of unreasonable regulations; and a revision to the Credit Information Protection Act granting special provisions for requesting debtor information without consent when conducting debt restructuring operations such as bad banks.