South Korea's Cabinet approved implementing regulations for a cornerstone-investor system in initial public offerings on November 3. The Financial Services Commission says the new Capital Markets Act provisions are scheduled to take effect on November 13, introducing preliminary demand assessments and allowing qualifying institutions to receive some shares in advance in return for holding commitments.
Underwriters will be able to ask eligible institutional investors about expected prices and share demand before formal securities registration. The inquiry must follow issuer due diligence, with confidentiality agreements and records of information shared before public filing. Regulators intend this feedback to improve the initial offering-price range rather than determine a guaranteed listing price.
Lockups and allocation caps
Cornerstone investors must satisfy professional-investor and capital requirements, including having sufficient assets relative to the intended investment. The allocation will be subject to staggered holding periods: 50% of the shares must remain locked for six months, 30% for eight months and 20% for ten months. The goal is to reduce sudden collective selling after an IPO.
The caps are measured against the ordinary institutional allocation, not the whole IPO. For Kospi listings, cornerstone allocations can total up to 20% of that tranche, with any one institution limited to 10%. For Kosdaq, the comparable limits are 30% overall and 20% for a single institution. Shares reserved for retail investors, employees and designated policy funds are treated separately.
Companies and underwriters must also prevent related-party favoritism or deals exchanging other benefits for advance allotments. The new process could provide issuers with more predictable demand and reduce early share turnover. Whether it succeeds will depend on real investment commitments and prices, not merely the introduction of another institutional allocation category.