FSC Announces Reforms to IPO and Delisting Systems

The financial authorities have announced measures to improve the IPO and delisting systems to address structural issues in the domestic stock market.

The Financial Services Commission (FSC), the Financial Supervisory Service (FSS), the Korea Exchange (KRX), the Korea Financial Investment Association (KOFIA), and the Korea Capital Market Institute (KCMI) held a joint seminar at the Korea Exchange conference hall in Yeouido, Seoul, on the 21st, where they unveiled the proposed improvements to the IPO and delisting systems. These measures aim to restore market trust and establish an investment environment centered on corporate value.

The proposed reforms focus on addressing the problems of the IPO market and delisting procedures in stages. Despite the increase in the number of listed companies and market capitalization in the Korean stock market, companies have been undervalued in terms of corporate value and growth potential. In the IPO market, repeated issues include pricing errors during the public offering process, post-IPO stock price declines due to short-term profit-seeking investments, and delayed delisting of underperforming companies, which has caused inefficiencies in capital allocation.

To transition the IPO market toward being more corporate-value-oriented, a new “preferential allocation system for mandatory lock-up” will be introduced. This system will encourage institutional investors to significantly increase their commitment to lock-up agreements. At least 40% of public offering shares will be preferentially allocated to institutions with lock-up agreements, and additional points will be awarded based on the lock-up duration.

Policy funds will also see stricter lock-up requirements. Previously, 5–25% of public offering shares were allocated to high-yield funds and KOSDAQ venture funds without specific conditions. Moving forward, such benefits will be granted only to shares with a lock-up period of at least 15 days. This change aims to curb short-term selling by institutional investors and promote mid- to long-term investment.

Additionally, the eligibility criteria for institutional participation in demand forecasting will be strengthened to prevent excessive competition during the process. The current registration period and total entrusted asset size requirements, which apply only to proprietary assets, will now also apply to managed assets. Indirect participation through fund-of-funds or overseas paper companies will also be restricted. The overemphasized "Day 1 extra points" system will be revised with relaxed scoring criteria to reduce concentration effects.

The role and responsibilities of underwriters will also be enhanced. To improve the credibility of IPO pricing and attract long-term investors, cornerstone investor systems and pre-demand forecasting will be introduced. Underwriters will also be prohibited from discriminatory internal allocations and will need to establish specific internal standards. Furthermore, mandatory lock-up requirements for shares pre-acquired by underwriters will be expanded.

The delisting system will be revamped to expedite the removal of underperforming companies. The market capitalization requirement will be gradually raised to KRW 500 billion for KOSPI (from the current KRW 50 billion) and KRW 300 billion for KOSDAQ (from the current KRW 40 billion) by 2028. Revenue requirements will also be strengthened, increasing to KRW 300 billion for KOSPI (from KRW 50 billion) and KRW 300 billion for KOSDAQ (from KRW 75 billion).

Companies will be delisted immediately if they fail to receive a qualified audit opinion for two consecutive years. However, to alleviate the burden of stricter revenue requirements, high-growth potential companies that meet the minimum market capitalization criteria will be exempt from the revenue requirements.

Delisting procedures will become more efficient by shortening the review stages and improvement periods. For KOSPI, the improvement period will be reduced from a maximum of four years to two years, and for KOSDAQ, from a maximum of two years to 1.5 years. If both formal and substantive delisting reasons occur simultaneously, the reviews will be conducted concurrently for efficiency.

The inefficiency of additional improvement periods granted during appeals will also be addressed. If the results of the first review are clear, no further improvement periods will be granted during the second review.

To protect investors, mechanisms will be established to support trading even after delisting. A “delisted company division” will be created in the K-OTC market, ensuring stock trading for six months post-delisting. Companies undergoing delisting reviews will also be required to disclose key details of their improvement plans to enhance investor awareness and maintain protection even after delisting.

The IPO system reforms will be implemented in phases starting in April. Provisions requiring preparation, such as internal system upgrades or investor guidance, will take effect in July. Legal amendments, such as the introduction of cornerstone investor systems and pre-demand forecasting, will be pursued by the second quarter through amendments to the Capital Market Act.

Delisting reforms, including shortened improvement periods and concurrent reviews, will take effect immediately after the completion of revisions to the exchange regulations in the first quarter of this year. Strengthened requirements for audit opinions, enhanced reviews for spin-off relistings, and mandatory disclosure of improvement plans for companies under delisting review will take effect in July. Stricter financial requirements, including market capitalization and revenue thresholds, will be enforced starting next January.

The “delisted company division” in K-OTC, aimed at supporting off-exchange trading, will be established next year in conjunction with the implementation of stricter financial requirements, following the preparation of detailed operational plans.

Seoul Tribune (c)

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