Next Year's Changing IPO System... Subscription Deposit Rate Adjustment Likely

[Asia Economy Reporter Park Jihwan] Next year's initial public offering (IPO) system is expected to undergo partial adjustments following major changes this year, such as a 5% additional expansion of the allocation for general subscription applicants and the introduction of equal allocation. Specifically, the subscription deposit required for investing in public offering stocks is expected to be significantly reduced.

According to financial authorities and the financial investment industry on the 9th, the Financial Services Commission is strongly considering lowering the subscription deposit ratio, currently at around 50%, by at least 10 percentage points starting next year. In the case of popular IPOs, subscription deposits amounting to as much as 50 trillion to 80 trillion won pour in, and the intention is to reduce unnecessary fund movements by lowering the required deposit level.

The subscription deposit refers to a contract deposit required to receive public offering stocks. Currently, investors must pay 50% of the subscription quantity as a deposit. For example, if an investor applies for 100 shares of a public offering, they must deposit an amount equivalent to 50 shares into their stock account. If the public offering price is 10,000 won per share, 500,000 won must be deposited in advance.

The problem is that investors are paying much more in deposits than the number of public offering shares they actually receive. In highly competitive IPOs, individuals may deposit tens of millions of won but receive only 2 to 3 shares. For example, in the case of Wonjun, a secondary battery-related stock that conducted a general public offering subscription over two days starting September 27, investment funds poured in far exceeding the public offering scale, resulting in the first-ever proportional allocation of 1 share per 100 million won. This meant that even after depositing tens of millions of won, some investors did not receive a single share.

Currently, proposed solutions include dividing the uniformly set 50% subscription deposit rate into 30%, 10%, etc., or adjusting the ratio flexibly according to the competition rate. A Financial Services Commission official stated, "We are reviewing the adjustment of the 50% subscription deposit rate as part of improving the IPO market system. However, even if the deposit is lowered, if the competition rate rises, the improvement would be meaningless, so we will not rush to make a conclusion within a day or two or by the end of the year."

It has been reported that financial authorities are not considering the opinion, mainly raised by academia, that the subscription results of individual investors should be reflected in the public offering price determination process. However, as in overseas cases such as Japan, if the IPO underwriter conducts individual investor subscriptions before deciding the public offering price, an appropriate public offering price including individual demand can be determined. Hwang Sewoon, senior researcher at the Korea Capital Market Institute, said, "If the demand results of individual investors are reflected in the public offering price calculation, controversies such as whether the price is 'expensive' or 'cheap' will not completely disappear, but the market will respond more sensitively to demand."