[Reporter’s Notebook] Institutions Engaged in 'IPO Short-Term Trading,' Individual Investors Bear the Losses

The stories of individual investors failing in IPO investments, as encountered by the reporter, generally follow this pattern. They become interested in the initial public offering (IPO) of Company A for investing in IPO stocks. However, lacking confidence, they hesitate to invest, but if Company A receives favorable evaluations in the demand forecast by institutional investors, they participate in the subscription. A successful demand forecast means that institutions highly value Company A's mid- to long-term growth potential. However, after the IPO listing, when they check their accounts, the stock price has plummeted. This is because the institutions that optimistically evaluated Company A sold their shares at a high price on the first day of listing.

In the past year, 85% of the IPO companies set their offering price at the top end of the expected price range. This is because institutions competitively raised their bids to buy shares from each other. However, only 13% of institutions signed a lock-up agreement, promising to hold the shares for a certain period without selling. The remaining 87% did not make such a commitment. This means that despite valuing the company highly during the demand forecast, they did not hold the shares for even 15 days. Lock-up agreements vary from a minimum of 15 days to a maximum of 6 months. In fact, institutions net sold all 15 newly listed stocks on the first day of listing this year. This is why institutions are referred to as 'short-term traders' in the IPO market. When institutions engage in short-term trading, stock price volatility inevitably increases, and the losses are borne entirely by individual investors.

When institutions submit high prices in the demand forecast to receive as many shares as possible, the offering price is set higher than the company's value, leading to bubble controversies. Moreover, if they did not sign lock-up agreements allowing immediate sale upon listing, the bubble controversy over the offering price inevitably intensifies.

Since last year, to curb stock price volatility after IPO listings, differential allocation of shares has been implemented based on the lock-up period. However, institutions prefer to secure even a smaller number of shares with lock-up agreements rather than more shares without them, engaging in short-term trading by selling at high prices when the stock price rises on the listing day. This is why further adjustments to the lock-up ratio for institutions are necessary to prevent increased stock price volatility after IPO listings.

The saying, "Investment should focus on the intrinsic value of the company rather than short-term price fluctuations," is common in the securities industry but conveys a crucial truth. If IPOs become a means for institutions to sell stocks to individual investors at inflated prices due to speculation, the advice "Investment should focus on short-term price fluctuations rather than intrinsic company value" would ironically become a reasonable recommendation, creating a ridiculous situation.