[2 Months After IPO Reform] ① The Day Trading Frenzy Fueled by '4x IPO Price'... 'New Listing Stock Warning'

Price Limit Expansion to Stabilize IPO Stock Prices Attracts Short-Term Trading
IPO Price Bubble Controversy... Experts Warn "High Volatility Requires Caution"
SPAC Stock Price Volatility... Financial Supervisory Service Warns "Risk of SPAC Losses"

On the day of listing, the stock price soaring up to four times the public offering price, known as the 'ttattabl' expectation, has sparked a frenzy of short-term trading. Consequently, warnings are growing that the initial public offering (IPO) market could turn into a speculative playground. Although the price limit range was expanded to allow stock prices to reflect intrinsic value more quickly, the influx of short-term trades has instead caused volatile price swings.

Increase in Speculative Trading Aimed at Short-Term Gains

According to the financial investment industry on the 28th, among the 17 IPO companies in July, eight companies that went public after institutional demand forecasting (excluding 4 SPACs, 4 KONEX companies, and 1 relisting out of the total 17 companies) recorded an average stock price return of 8.1% by the end of July compared to their public offering price. The opening price was set high at 119.2% of the public offering price, but the stock price declined afterward, reducing returns. If investors sold their IPO shares at the opening price on the first day of listing, they could have earned an average return of 119.2%, but holding for a month and then selling resulted in an average return of 8.1%. Notably, those who bought at the opening price and held for a month suffered an average loss of 43.5%.

These stocks are newly listed shares subject to the new price limit range. In April, financial authorities revised the operational rules for the securities market and KOSDAQ market to improve the method of determining the base price for newly listed stocks and to expand the price limit range. The key change was adjusting the price limit range on the listing day to 60-400% of the public offering price. Previously, the opening price was determined within 90-200% of the public offering price, with intraday fluctuations limited to ±30%. From June 26, the intraday price range from the opening price to the closing price on the listing day was changed to allow fluctuations between 60-400% of the public offering price.

Following this, speculative trading expecting the so-called 'ttattabl' (four times the public offering price) increased, overheating the IPO market, and when short-term traders exited, stock prices plunged sharply. Park Jong-sun, a researcher at Eugene Investment & Securities, explained, "In the case of Phil Energy, the opening price rose 260.6% compared to the public offering price, but the closing price on the first day only increased by 48.5% from the public offering price and then continued to adjust," adding, "While a high opening price on the listing day is positive, the stock price showed severe volatility with large adjustments in a short period."

Controversy Over Public Offering Price Bubble and Stock Price Volatility

As the market overheated following the system reform, controversy over a bubble in the public offering price also arose. Among the eight newly listed companies last month, six (ALT, Vernect, Beauty Skin, Oeilab, SensorView, Phil Energy, etc.) exceeded the upper limit of their expected public offering price band. SensorView and CGtronics set their public offering prices 25% above the highest point of the expected price band, while ALT and MI Cube Solution exceeded it by 21.95% and 20%, respectively. Innosimulation was confirmed at the upper limit, and Pharos I Bio was confirmed at the lower limit. Kim Su-yeon, a researcher at Hanwha Investment & Securities, noted, "As IPO requirements have gradually eased and market liquidity improved, companies with rapidly increasing corporate value have emerged."

As cases of newly listed shares exceeding the upper limit of the expected price band continued, authorities were caught off guard. The Financial Services Commission announced measures to enhance IPO soundness in December last year, stating, "We will strengthen institutional demand forecasting to determine appropriate public offering prices." Accordingly, pre-demand surveys for institutional investors were allowed even before submitting the securities registration statement, enabling underwriters to reasonably reassess and adjust the public offering price range. Additionally, the demand forecasting period, traditionally conducted over two days, was extended to ensure an appropriate public offering price could be selected within the price range. Researcher Kim Su-yeon pointed out, "The decline in returns compared to the public offering price is not due to the expansion of the price limit range to 400%, but because the public offering price itself increased."

It is also interpreted that the influx of institutional funds contributed to the public offering price bubble. As a series of incidents occurred in overseas real estate and other sectors, institutions flocked to IPO shares, which promised stable returns. Researcher Park Jong-sun analyzed, "Among the eight companies that underwent institutional demand forecasting, 87.5% of the public offering prices were set at or above the upper limit, the highest rate since April 2022."

As the number of IPO shares recording prices at or above the upper limit increased, stock price volatility also expanded. Securities such as Secuzen (198%), Almek (190%), Innosimulation (199%), DB Financial SPAC No.11 (187.5%), and Phil Energy (260.6%) recorded opening prices nearly 200% higher than their public offering prices. However, over time, many newly listed shares fell below their public offering prices. Experts diagnose this as the result of excessive public offering price calculations and a short-term trading frenzy aimed at quick profits. Han Jae-hyuk, a researcher at Hana Securities, said, "The revised IPO regulations raised expected returns, overheating the market," and cautioned, "Investors need to be careful about the high intraday volatility."

SPAC Overheating 'Financial Supervisory Service Warning'

The most severe overheating after the price limit range change has appeared in SPACs. Some argue that SPACs should be excluded from the '400% price limit' rule.

This year, the number of SPAC listings reached a total of 19 by the end of July. Not only large firms but also small and medium-sized securities companies actively participated in SPAC IPOs. It is expected that the record for the most SPAC listings in a year will be broken this year.

SPACs are paper companies established for mergers and acquisitions. At the time of listing, they have no real substance and their stock prices move solely based on supply and demand. After the price limit range change last month, short-term trading of newly listed SPACs became extreme. Kyobo SPAC No.14, listed on July 6, had a public offering price of 2,000 KRW, but its stock price soared to 8,190 KRW on the second day after listing. DB Financial SPAC No.11, listed on July 12, saw its opening price on the listing day rise 187.5% compared to the public offering price. Because SPACs have small market capitalizations and are light stocks, they tend to experience sharp price fluctuations, and the price limit range change has further increased volatility.

Financial authorities appear bewildered by this phenomenon. The financial investment industry believes the authorities did not anticipate the side effects of the system change. As a result, the Financial Supervisory Service (FSS) stepped in to urge investor caution. The FSS warned, "Recently, newly listed SPACs have experienced sharp price fluctuations immediately after listing," emphasizing, "SPACs are merely tools for mergers and hold value only at the public offering price level before the merger."