National Assembly Passes Amendment to the FSCMA Introducing the Cornerstone Investor System

On April 23, 2026, the National Assembly passed an amendment to the Financial Investment Services and Capital Markets Act (the "FSCMA"), primarily aimed at introducing certain key measures, including the cornerstone investor system. The amended FSCMA will take effect six months after promulgation.

Background and Purpose

Under the current FSCMA, an initial public offering (IPO) generally proceeds in the following order: (i) filing of the securities registration statement, (ii) book-building with institutional investors, (iii) determination of the offering price, (iv) subscription and allocation, and (v) listing. Concerns have been repeatedly raised about the frequently witnessed practice of certain institutional investors' submitting high bids during book-building in order to secure allocations and then quickly selling the allocated shares for short-term gains, which would undermine appropriate price discovery in IPOs and increase post-listing price volatility.

To address these issues, the Financial Services Commission (the "FSC") has been implementing improvements of the IPO framework in phases. These measures include introducing a mechanism to verify an investor’s capability to pay subscription price (2022), strengthening corporate due diligence standards and introducing sanctions for inadequate due diligence (2024), and establishing a framework of priority allocation (of 30 to 40%) for institutional investors providing lock-up commitments (July 2025).

Building on these reforms, and drawing on precedents from Hong Kong, Singapore, and the United States, the amendment introduces two key mechanisms: (i) a preliminary book-building regime, which allows underwriters to gauge institutional demand before filing the registration statement, and (ii) the cornerstone investor system, which enables the pre-allocation of shares to institutional investors subject to a minimum six-month lock-up. The overarching goal is to promote more appropriate IPO prices and more mid- to long-term investments.

Key Amendments

Article 119(1) of the current FSCMA provides that a public offering or sale of securities may be conducted only after the securities registration statement is formally filed and accepted by the FSC. Consequently, underwriters are prohibited from soliciting subscriptions prior to the filing of securities registration statement, and assessing demand (e.g., bidding prices and volumes) by sharing issuer information would also pose a compliance risk. Further, it is prohibited to solicit or accept subscriptions from investors before the effectiveness of securities registration statement.

The amended FSCMA provides exceptions to these rules by introducing the following:

(1)

Introduction of the Preliminary Book-Building System (newly introduced Article 119-3)

Issuers, underwriters, and arrangers may now solicit offers by assessing demand—such as bidding purchase prices and volumes—from designated professional investors (as defined by the applicable Presidential Decree) prior to the filing of securities registration statement.

(2)

Introduction of the Cornerstone Investor System (newly introduced Article 119-4)

Issuers, underwriters, and arrangers may solicit subscriptions for a portion of the offering from designated professional investors—and accept subscriptions submitted by such professional investors—prior to the filing of securities registration statement. When selecting these investors, issuers, underwriters, and arrangers must establish a robust system to prevent conflicts of interest, as prescribed by the Presidential Decree.

Accordingly, "cornerstone investors" who acquire shares must commit to a lock-up period of at least six months, with the exact durations to be determined by the Presidential Decree. Because the shares allocated to cornerstone investors are exclusively from the existing institutional investor pool, this amendment will not alter the allocation ratio between retail and institutional investors.

Outlook

This amendment is part of broader capital markets innovations aimed at achieving a "Korea premium." In particular: (i) because preliminary book-building will be permitted, issuers will be able to reflect market demand when establishing the indicative price range to be disclosed in the securities registration statement, thereby the appropriateness of IPO pricing is expected to be enhanced; and (ii) the cornerstone investor system is expected to enhance credibility of the IPO markets as stable, long-term institutional investors may be secured in advance.

The amendment will take effect six months after its promulgation. The FSC has announced that, as key regulatory measures—such as regulations relating to preliminary information sharing, caps on allocations to cornerstone investors, and standards for conflict-of-interest prevention frameworks—are delegated to the Enforcement Decree, it will design the applicable detailed regulations after collecting input from institutional and retail investors, underwriters, and other market participants. Accordingly, market participants are advised to closely monitor the development of the relevant regulations and related rulemaking process.

[Korean Version]

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