The Philippine Stock Exchange is seeking leeway to jack up the maximum initial public offering allotment for local small investors (LSI) to P100,000 from P25,000 or any amount warranted on a case-to-case basis to make equities investing worthwhile for retail investors.
The proposed significant increase in the maximum LSI subscription is meant to improve the take-up of the mandatory shares allotment to these small investors and give them greater opportunity to benefit from potential market gains.
“The aim is to include an indexation mechanism in the maximum amount that a local small investor can avail himself of under the LSI program. Given that the LSI allocation accounts for 10 percent of any IPO, the ability of the exchange, in consultation with the underwriters and issuers, to adjust the ceiling on a case-to-case basis would effectively give retail investors more opportunities to invest and participate in IPOs, taking into account current prices and market conditions,” PSE chief operating officer Roel Refran explained in a text message.
In a memorandum posted on its website on Tuesday, the PSE issued the proposed amendment to seek public feedback on or before Dec. 29.
“The exchange believes that the maximum allowable investment under the LSI program needs to be updated as well as to be indexed against the increasing offer size and the investing capacity of investors,” the memo said.
The LSI was introduced as a mechanism to allow small investors to participate in any IPO.
“The exchange proposes to allow a maximum investment size per LSI that is applicable to the offer size. By indexing the maximum to the offer size, we hope to increase the total take-up of the LSI allocation.”
At present, LSIs are defined as those willing to subscribe to as much as P25,000 of IPO shares. Based on the proposed amendment, LSI will be defined as a share subscriber who is willing to subscribe to a minimum board lot “and whose subscription does not exceed P100,000 or such amount that may be allowed by the exchange, on a case to case basis, to help facilitate greater participation and subscription to the local small investor allocation.”
In the event of either oversubscription or undersubscription, the rules allow a “clawback” or “clawforward” mechanism.
A “clawback” refers to the reallocation of more shares to the retail tranche from the institutional portion. A “clawforward,” on the other hand, reallocates more shares to institutional investors from the original amount set aside for retail investors.
Less than 1 percent of the total Philippine population invests in the stock market at present. The PSE has been conducting free stock investing seminars to encourage more retail investors to participate in the equities market.