Promulgation and Enforcement of Amendment to FSCMA Introducing Cornerstone Investor System

On April 23, 2026, the National Assembly passed an amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”), which was subsequently promulgated on May 12, 2026. The amended FSCMA is scheduled to take effect on November 13, 2026.

Under the current initial public offering (“IPO”) framework, the listing process generally proceeds in the following order: (i) filing of a securities registration statement with the Financial Supervisory Service (the “FSS”), (ii) book-building with institutional investors, (iii) determination of the offering price, and (iv) subscription and allocation. However, under this system, certain institutional investors—driven by short-term arbitrage—frequently submit inflated bids during the book-building process to secure allocations and then quickly sell off their shares. This practice has hindered appropriate price discovery and aggravated post-listing stock price volatility.

To address these issues, foster rational pricing and encourage medium to long-term investment, the amendment establishes a legal framework to allow pre-deal investor education (or “pre-sounding”) with institutional investors even prior to the filing of a securities registration statement. Concurrently, the “cornerstone investor system” has been introduced, which permits the pre-allocation of a portion of IPO shares to specific institutional investors on the condition of a lock-up period of six months or longer.

Preliminary Book-Building System

Preliminary book-building is a system that allows underwriters to gauge market demand before the indicative offering price band is finalized through the disclosure of a securities registration statement. Under the current FSCMA, soliciting subscriptions prior to the acceptance of a securities registration statement is restricted. Consequently, any conduct by an underwriter to assess demand—such as obtaining desired prices and volumes by providing corporate information to institutional investors before filing the registration statement—posed a potential compliance risk. However, the amended FSCMA introduces the preliminary book-building system by granting an exception to these regulatory restrictions.

Under the amended FSCMA, issuers, underwriters and arrangers may now solicit subscriptions prior to the filing of a securities registration statement by assessing demand—such as desired purchase prices and volumes—from professional investors prescribed by the Enforcement Decree, taking into account their asset size and other relevant factors.

Cornerstone Investor System

The cornerstone investor system permits the pre-allocation of a portion of the institutional allotment to institutional investors who agree to a lock-up period of six months or longer. Similar to the preliminary book-building system, the amended FSCMA introduced the cornerstone investor system as an exception to the restrictions on soliciting or accepting subscriptions prior to the filing of a securities registration statement.

Under the amended FSCMA, issuers, underwriters and arrangers may solicit subscriptions for a portion of the offering from, and accept subscriptions submitted by, professional investors prescribed by the Enforcement Decree (taking into account their asset size, etc.) prior to the filing of a securities registration statement.

A cornerstone investor who acquires shares through this method must place the acquired shares in a lock-up arrangement for a period of six months or longer, as prescribed by the Enforcement Decree.

Furthermore, when selecting professional investors to whom such subscriptions will be solicited, issuers, underwriters and arrangers must establish a framework to prevent conflicts of interest. In addition, if information regarding the shares is provided prior to the filing of the securities registration statement in connection with the preliminary book-building or the cornerstone investor system, a record of such information—including the list of professional investors who received it—must be maintained and managed in accordance with the Enforcement Decree.

By granting exceptions to the existing regulations on securities registration statements, the amendment is expected to improve the overall IPO framework. It will serve as a useful reference not only for underwriters but also particularly for institutional investors and companies preparing for an IPO.

Meanwhile, specific regulations—including a code of conduct for preliminary information sharing, caps on allocations to cornerstone investors and standards for conflict-of-interest prevention frameworks—will be detailed through subsequent amendments to the Enforcement Decree of the FSCMA and other subordinate regulations. Since the Financial Services Commission has announced that it will design these detailed rules by collecting feedback from market participants, including institutional/retail investors and underwriters, market participants may consider submitting their opinions and comments during this process if necessary.

[Korean Version]

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