The Financial Supervisory Service (FSS) will differentiate its review of securities filings based on their completeness. If a filing shows insufficient corrections after the initial request, the FSS will publicly disclose that the necessary adjustments were not adequately addressed, rather than repeatedly outlining specific deficiencies. Conversely, filings that are thoroughly prepared and do not require corrections will be expedited to support companies in raising funds.
On August 28, the FSS held a meeting at the Korea Financial Investment Association with Lee Seung-woo, Deputy Director of Disclosure Investigation, along with the head of the Disclosure Review Division, the head of the Self-Regulatory Division of the Korea Financial Investment Association, and executives from 11 securities firms involved in IPOs and capital increases to explain the new direction for reviewing securities filings.
This reform aims to address issues arising from repeated corrections to securities filings, which have delayed companies' fundraising schedules and overburdened review capabilities on certain filings.
Previously, the FSS provided detailed correction requests to support fundraising, even when subpar filings were submitted. However, some issuers and underwriters relied on this practice, leading to insufficient attention during the initial filing stage and inadequate corrections after the initial requests, resulting in repeated amendments.
To encourage underwriters to conduct proper due diligence during the underwriting process and allocate review resources based on the completeness of filings, the FSS is introducing a 'differentiated correction request' system.
Specifically, if important information is missing or requires clarification in the initial or amended filings, the FSS will continue to send relatively detailed correction requests. However, if an amended filing addresses some issues but still has multiple significant deficiencies, it will be reviewed at a 'Level 2' standard. In this case, while a correction request will still be sent, it will only state that 'the submitted amended filing inadequately reflected the correction requests' without repeating specific deficiencies.
This differentiated review process will be disclosed to the market through the electronic disclosure system (DART). The FSS plans to inform investors of the inadequacies in addressing the correction requests through public announcements, aiding their investment decisions.
In contrast, securities filings that thoroughly address investment risk factors and do not receive correction requests will have their review results communicated to companies as quickly as possible. To protect investors, even when corrections are necessary, the FSS aims to manage the review process to prevent unnecessary delays in fundraising.
Deputy Director Lee emphasized, 'Providing sufficient information to investors is a fundamental principle of securities filing reviews,' while also highlighting the importance of enabling companies to smoothly raise funds through capital markets when needed. He added, 'We will enhance review efficiency through a strategy of 'selection and concentration.'
He also urged underwriters to strengthen their roles, stating that they are not only facilitators for companies seeking funds but also gatekeepers of the capital market. They must provide thorough explanations of the reasons for capital increases and the intended use of funds based on adequate due diligence and communication with shareholders to minimize unnecessary corrections and review delays.
Additionally, during the meeting, the FSS reviewed the effects of the IPO demand forecasting system improvements implemented since July of last year. A comparison of the number of shares allocated to institutional investors before the system's implementation (January 1 to June 30 last year) and after (July 1 last year to June 30 this year) showed that the proportion of mandatory holding commitments by institutional investors increased from 29.0% to 77.7%, a rise of 48.7 percentage points. The proportion of mandatory holding commitments by policy funds also increased from 35.8% to 95.0%, a jump of 59.2 percentage points.
However, it was noted that the proportion of shorter 15-day mandatory holding commitments remains the highest, and the impact of strengthened participation requirements for private equity firms and investment advisory firms in demand forecasting has not yet been significant. The FSS plans to continue refining the system to shift the IPO market focus from short-term profit realization to medium- and long-term investments based on corporate value.
Discussions were also held regarding the implementation of the pre-demand forecasting and cornerstone investor systems scheduled for November. The FSS urged underwriters to record and manage the timing, counterparties, and information provided during the pre-demand forecasting process, and to review the independence and qualifications of investors during the selection and allocation of cornerstone investors to prevent conflicts of interest.
* This article has been translated by AI.
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