1.

Expansion of Mandatory Holding Commitment for Institutional Investors
 

(1)

Introduction of a system to prioritize allocation to mandatory holding commitment institutions, along with strengthening of scoring (scheduled to take effect on July 1, 2025)

The financial authorities have decided to introduce a system in which at least 40% of policy funds and other funds allocated to institutional investors will be prioritized for those that have made a mandatory holding commitment. If the total committed amount falls short of this 40% threshold, the lead underwriter will be required to acquire 1% of the public-offering volume (with a ceiling of KRW 3 billion) and hold these shares for six months.

Further, the maximum scoring period for the mandatory holding commitment will be extended from three months to six months. The current scoring structure awards points based on the duration of the commitment at the time of IPO share allocation (e.g., five points for three months, four points for one month, and 1.5 points for fifteen days). Under the revised scoring structure, the points will be adjusted to seven points for up to six months, five points for three months, three points for one month, and two points for 15 days.
 

(2)

Expansion of mandatory holding commitment for policy funds (scheduled to take effect on July 1, 2025)

Currently, 5% to 25% of the public offering volume is allocated specifically to policy funds, such as high-yield funds and KOSDAQ venture funds, to support their development. However, concerns have arisen due to an increasing number of instances in which these policy funds are selling IPO shares on the listing day to achieve short-term gains. In response, the financial authorities have decided to limit the allocation benefits to amounts that come with a mandatory holding commitment of at least 15 days.
 

(3)

Strengthening of sanctions against institutional investors in violation of the mandatory holding commitment (scheduled to take effect on April 1, 2025)

Current regulations impose sanctions on institutional investors for violations of the mandatory holding commitment and for non-payment, including restrictions on their participation in demand forecasts. However, the impact of such sanctions has been limited, as they can be substituted for penalties or even exempted, and there is no clearly defined criteria for alleviation or reduction. For these reasons, the financial authorities have decided to clearly define the criteria for alleviation or reduction through the improvement of the current systems and focus more on restricting violators’ participation in demand forecasts, rather than solely focusing on imposing sanctions. Additionally, exceptions will be made to allow for substitutions of sanctions with penalties when the severity of the final sanctions is deemed low.
 

2.

Rationalization of the Eligibility Criteria for Institutional Investors Participating in Demand Forecasts and the Demand Forecasting Method

The financial authorities have announced measures to strengthen the eligibility criteria for institutional investors, due to the increasingly excessive participation in demand forecasts with the maximum quantity and price without sufficiently assessing corporate value.
 

(1)

Strengthening of the eligibility criteria for institutional investors participating in demand forecasts (scheduled to take effect on July 1, 2025)

Many small institutional investors are participating in demand forecasts despite lacking the capability to accurately evaluate corporate value, resulting in minimal contribution to establishing reasonable public offering prices based on demand forecasts. Furthermore, there has been criticism regarding the inconsistency of eligibility criteria for the same institutional investor, which can vary depending on the type of assets involved (e.g., its own assets, fund assets, and discretionary assets) with which it participates in demand forecasts. Until now, specific eligibility criteria apply only to institutional investors participating with their own assets (i.e., (i) two years after registration with a minimum of KRW 5 billion in a three-month daily average of total entrusted assets, or (ii) at least KRW 30 billion in a three-month daily average of total entrusted assets). The IPO System Improvement Plan aims to extend this eligibility criteria to institutional investors’ fund assets and other assets under their management. However, if private equity firms or discretionary investment firms commit to a holding period of at least three months, the current eligibility criteria for fund and discretionary asset participation will remain unchanged.

As for participation in demand forecasts using funds of funds, both the investing and invested funds participate concurrently by forming the total fund asset amount, leading to potential overlaps that could circumvent the subscription payment capability requirements. To mitigate these unintended effects, the financial authorities have decided to exclude contributions from invested funds when assessing subscription payment capability.

For foreign institutional investors, whose substantiality (or legitimacy) may be challenging to verify due to the absence of a transaction history, the default position will be exclusion from the allocation of IPO shares. Nonetheless, if they can provide specific evidence demonstrating their operational status overseas, their substantiality will be recognized.
 

(2)

Rationalization of the first-day scoring system (scheduled to take effect on April 1, 2025)

The first-day scoring system was introduced to encourage proactive participation in demand forecasts. Contrary to its purpose, however, higher scoring on the first day of demand forecasts has led to excessive focus on the first day, with participants often bidding at the upper limit or beyond the public offering price range to secure a lager allocation, without carefully considering the price. Consequently, the financial authorities have decided to improve the current scoring system by lowering the overall scores awarded based on the timing of participation.
 

3.

Strengthening of the Roles and Responsibilities of Lead Underwriters
 

(1)

Introduction of a cornerstone investor system and a pre-demand forecasting system (proposed amendments to the Financial Investment Services and Capital Markets Act (the “FSCMA”) are scheduled to be submitted to the National Assembly in the first half of 2025)

The cornerstone investor system aims to foster mid and long-term investment by enabling the pre-allocation of shares to selected institutional investors before they submit registration statements, contingent upon a lock-up period for those shares. Meanwhile, the pre-demand forecasting system allows for preliminary identification of institutional investors’ demand for investment, by incorporating market evaluations during the process of establishing a public-offering price band.

To implement these two systems, the financial authorities plan to amend applicable laws and outline necessary details in subordinate legislation, including provisions to prevent unfair trade practices and address potential conflicts of interest.
 

(2)

Stipulation of internal allocation standards for lead underwriters (scheduled to take effect on July 1, 2025)

Despite the “IPO Business Improvement Plan for Lead Underwriters” announced in May 2024, which requires lead underwriters to establish internal standards for allocation of IPO shares, there has been ambiguity regarding the specific components that should be included in these standards. To address this issue, the financial authorities have outlined the key elements that must be incorporated, including: (i) the prioritization method for allocating shares to institutions with mandatory holding commitments, (ii) the criteria for defining groups (or tiers) and the allocation process within each group, (iii) the criteria for weighting allocations, (iv) the criteria for exceptions, (v) the internal approval system, and (vi) the protocols for data retention.
 

(3)

Strengthening of the requirements of mandatory holding of pre-acquired shares by lead underwriters (scheduled to take effect on July 1, 2025)

Under the current framework for the FSCMA, lead underwriters are restricted from transferring shares for a period of thirty days if they acquire those shares within two years of the listing date. Currently, in the KOSDAQ market, the mandatory holding period for lead underwriters is extended if shares are acquired within six months from the listing date, particularly if there is significant price deviation (calculated as the public offering price minus the pre-acquisition price). However, criticisms have arisen regarding the leniency of the price deviation criteria and mandatory holding periods, which are seen as insufficient for ensuring the accountability of lead underwriters. In response to these concerns, the IPO System Improvement Plan aims to strengthen the accountability of lead underwriters by lowering the price deviation threshold from 50% to 30% and extending the mandatory holding period from one month to three months.
 

1.

Strengthening of the Delisting Rules
 

(1)

Financial requirements – The requirements of market capitalization and sales revenue are to be tightened (scheduled to take effect in a phased manner starting from January 1, 2026)

There has been criticism regarding the lax requirements for market capitalization and sales revenue, which allow companies with low growth potential to remain listed on the capital market. This situation not only undermines the competitiveness of the capital market but also raises concerns about its overall health. Therefore, the financial authorities plan to tighten these requirements to enhance their effectiveness. To ensure a smooth transition, this implementation will be carried out in a phased manner, allowing for an orderly adjustment within the market.
 

(2)

Non-financial requirements – the criteria for “modified opinions” are to be tightened (scheduled to take effect on July 1, 2025)

When a company receives a modified opinion (i.e., qualified opinion, adverse opinion, or disclaimer of opinion), it triggers a potential delisting event. In such cases, the company has the right to file an objection to contest the delisting decision and may subsequently be granted a designated improvement period. However, some companies may deliberately seek modified opinions to avoid delisting and to delay the delisting review process, despite having their delisting based on other criteria. To counteract this practice, companies that receive modified opinions for two consecutive fiscal years (including failure to submit annual reports) will face immediate delisting. Nonetheless, in consideration of their impact on the Korean economy, companies undergoing rehabilitation or workout procedures may be given an exceptional extension of one additional year to improve their situation.
 

(3)

Strengthening of the delisting review of a surviving entity in the case of relisting of a spun-off entity (scheduled to take effect on July 1, 2025)

When a new company is created through a spin-off and subsequently relisted on the KOSPI market (i.e., relisting of a spun-off entity), the surviving entity is not held to separate requirements or reviews. However, this lack of scrutiny may weaken the surviving entity, so failing to meet the minimum criteria will be considered a reason to require a substantive review in the relisting process of the spun-off entity on the KOSPI market. This substantive review will evaluate factors such as equity capital, sales revenue, net income, etc., with the thresholds for these criteria set higher than those of the KOSDAQ market.
 

2.

Streamlining of Delisting Procedures (scheduled to take effect in March 2025 or on July 1, 2025)

The duration of the delisting process (i.e., the time from the occurrence of delisting reasons to the final delisting decision) will be shortened to prevent unnecessary delays. This includes a maximum reduction of improvement periods, set to take effect in March 2025, and the streamlining of the delisting review process scheduled to take effect on July 1, 2025.

When both technical and substantive reasons for delisting arise simultaneously, the current rules mandate a suspension of the substantive review procedure. This procedure resumes only after the completion of a technical review and the allocation of an improvement period. In contract, the Delisting System Improvement Plan seeks to streamline this process by enabling technical and substantive reviews to occur concurrently. As a result, whichever review reaches a “delisting decision” first stands as the final decision (scheduled to take effect in March 2025).
 

3.

Strengthening of Investor Protection (support for delisted share trading scheduled to take effect on January 1, 2026; and expansion of the application of disclosure requirements scheduled to take effect on July 1, 2025)

As the number of delisted companies increases due to stricter delisting rules and more streamlined delisting procedures, there is a pressing need to enhance investor protection measures. To support continued trading of delisted shares and strengthen investors’ right to information, the Delisting System Improvement Plan sets out two key initiatives: (i) the utilization of K-OTC, the trading platform for unlisted shares, to facilitate the trading of delisted shares for a specified duration, and (ii) a requirement for companies to disclose the main contents of their “improvement plans” submitted to the Korea Exchange.