SEC seeks to curb unjust benefits received by large IPO buyers
The Securities and Exchange Commission (SEC) wants a lockup period and more transparent rules for large initial public offering (IPO) investors to promote protection of smaller buyers.
It released a new draft memorandum covering a specific class of large IPO buyers known as cornerstone investors, which commit to buy a fixed number of shares to secure a guaranteed allocation in a public offering.
Not all IPOs have cornerstone investors but their presence can play a key role in ensuring the offer’s success. This also gives rise to the perception cornerstone investors might receive undue advantages over other investors—which the SEC is seeking to plug with the new guidelines.
Among the rules is the requirement of the firm conducting an IPO to “ensure that cornerstone investors are not provided with any material information beyond that to be contained in the final prospectus.”
The IPO shares they purchase will be subject to a 30-day lockup period—which means the shares cannot be traded—from the date of listing.
The SEC said the cornerstone investor must also purchase the shares at the IPO price and must “firmly commit to purchase the shares, provided that the final offer price falls within the preferred range as agreed upon.”
New guidelines
Moreover, cornerstone investors must be identified in the final IPO prospectus, including their profile descriptions and number and type of securities they purchased.
Juan Paolo Colet, managing director at investment bank China Bank Capital Corp., welcomed the new guidelines since the absence of clear rules was “a perennial concern in the local equity capital markets.”
“The SEC’s proposed guidelines will finally provide the needed regulatory clarity to facilitate cornerstone investments in IPOs,” Colet said in a text message.
“This is an important step in creating a more conducive IPO market. Cornerstone investors play a role in signaling the credibility of the issuer and de-risking the IPO process,” he added.
The Philippine Stock Exchange expects six IPOs this year worth around P40 billion versus three firms in 2023 that raised about P13 billion.
The bourse’s overall capital raising target for the year is P175 billion, which is a 24-percent increase over 2023. INQ
