South Korea Sets New IPO Rules to Stop Post-Listing Price Drops

South Korea will soon launch a new system for cornerstone investors in initial public offerings to stop sharp price drops after companies go public. The Financial Services Commission announced that institutions promising to hold their shares for at least six months can get share allocations in advance. The government approved this system on Tuesday, and the new rules take effect November 13 along with changes to the capital markets law.

Rules And Limits

Underwriters will be allowed to check institutional demand before a company files its registration statement and sets a price range. To qualify as a cornerstone investor, an institution must have equity capital or assets under management that are at least twenty times the shares it buys in advance. Pre-allocations will be capped at twenty percent of the institutional tranche on the Kospi, with a single investor limit of ten percent. For the Kosdaq market, these limits are thirty percent and twenty percent respectively. Furthermore, cornerstone shares will be freed from lockups in stages to prevent a sudden wave of selling. Half of the allocation stays locked for six months, thirty percent for eight months, and the final twenty percent for ten months.

Market Context

South Korea's volatile stock market has hurt several recent market debuts. For instance, shares of data center infrastructure firm Elice Inc. fell thirty-two percent on their first day. Overall, companies that listed in 2026 show a weighted-average drop of thirty-two percent, while the Kospi index gained thirty-eight percent. Sentiment also suffers from regulatory pressure on duplicate listings, where parent companies list subsidiaries separately. For example, SK Hynix Inc. dropped plans for a ten billion dollar US listing of its Solidigm unit after pushback from shareholders and regulators over minority investor dilution. Other regions use similar approaches, as Hong Kong pioneered a cornerstone system, the United States uses a test-the-waters regime, and India relies on anchor investors.

Context

Market regulators around the world often use pre-allocation and lockup rules to protect everyday investors from extreme price swings right after a company starts trading. These measures aim to build long-term buyer trust and create fairer pricing before shares officially hit the open market.