[Asia Economy Reporter Ji Yeon-jin] Recently, major securities firms have consecutively introduced subscription fees for public offering shares. Mirae Asset Securities will charge 2,000 KRW per subscription starting from the 5th of next month for Bronze-tier customers (with deposit assets of 30 million KRW or less). KB Securities will impose an online subscription fee of 1,500 KRW from the 28th of the same month. Samsung Securities will charge 2,000 KRW per subscription for general-tier online public offering subscriptions starting from the 28th of this month. Following Korea Investment & Securities and SK Securities, which already charged a 2,000 KRW subscription fee, most large securities firms with high market shares in initial public offering (IPO) underwriting have decided to impose subscription fees.
Since last year, the public offering investment boom has continued, with subscription numbers surging for major IPOs, causing a sharp increase in the workload of securities firms. Additionally, from the 20th of this month, the revised Enforcement Decree of the “Capital Markets and Financial Investment Business Act” prohibits duplicate subscriptions. Securities firms are required to verify duplicate subscriptions through Korea Securities Finance when accepting public offering subscriptions, and it is considered an unfair business practice to allocate shares to applicants who have made duplicate subscriptions even after verification. Violations may result in imprisonment of up to five years or fines up to 200 million KRW. Given the additional workload of verifying duplicate subscriptions, the introduction of subscription fees seems justified.
However, the duplicate subscription verification is conducted by Korea Securities Finance, which receives encrypted applicant information such as subscription times from the lead underwriters and recognizes only the first application in chronological order, disqualifying the rest. This raises questions about whether the securities firms’ duplicate subscription verification duties alone justify the introduction of fees. Rather, the cost issues related to server expansions due to the public offering investment boom carry more weight. This year’s intensified public offering subscriptions were fueled by the government’s introduction of the “equal allocation system” to expand investment opportunities for individual investors. Previously, subscriptions were allocated proportionally, meaning the more deposit you put in, the more shares you received. From this year, the system changed to equal allocation, distributing shares to all investors who paid the minimum subscription deposit, attracting millions of small investors.
Moreover, the timing mismatch between the implementation of the equal allocation system and the ban on duplicate subscriptions made public offerings over the past six months appear increasingly like a “lottery” frenzy. The psychology of wanting to receive even one more share led to overnight queues to open accounts at securities firms. This investment enthusiasm resulted in system crashes at securities firms. During the SK IE Technology (SKIET) public offering subscription in April, Samsung Securities’ MTS experienced account transfer errors on the refund day of subscription deposits, and on the first trading day of SK Bioscience’s listing, Mirae Asset Securities’ MTS malfunctioned, causing some customers to be unable to place sell orders, for which they were compensated for the price difference.
The government’s policy improvements driven by the public offering investment boom are expected to substantially fill the pockets of securities firms. Last year, SK Biopharm, which ignited the public offering investment craze by recording a “ttasangssangsang” (where the opening price on the first day of listing was double the public offering price, followed by three consecutive days of upper limit price increases), had 231,886 subscription applications. This year, SK Bioscience, considered a major IPO with proportional allocation introduced, attracted 2,398,167 applications, more than ten times the previous year. SKIET, regarded as the “last ride” before the duplicate subscription ban, saw applications increase to 4,743,055. Calculating fees based on SKIET’s public offering subscriptions, the lead underwriter Mirae Asset Securities can expect fee revenue of 2.8 billion KRW from 1,427,850 applicants. Considering that underwriting fees for the listing amount to 4.6 billion KRW, this is by no means a small amount.
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