FSS to Strengthen Correction Requests for Incomplete Securities Registration Statements... Disclosure of "Insufficient" Cases to Investors

Meeting Held with Securities Firms Responsible for IPOs and Capital Increases
Introduction of the "Differentiated Correction Request" System for Securities Registration Statements

The Financial Supervisory Service announced that it will begin differentiating the review process for securities registration statements based on the completeness of each submission. If a revised statement fails to address requested corrections after the initial modification request, the agency will stop providing detailed feedback and instead publicly disclose to investors that the "corrections were insufficiently addressed." On the other hand, securities registration statements that are thoroughly prepared will be reviewed swiftly to facilitate companies’ fundraising activities.

On August 28, the Financial Supervisory Service (FSS) held a meeting with 11 securities companies responsible for IPOs and paid-in capital increases at the Korea Financial Investment Association, where it explained its plan to implement a "differentiated correction request" system for securities registration statements. Lee Seungwoo, Deputy Governor of the FSS’s Disclosure Review Division, stated, "Providing sufficient information to investors is the basic principle of reviewing securities registration statements, but it is also important to enable companies to smoothly raise funds in the capital market when needed." He added, "We will improve review efficiency through 'selection and concentration.'"

Until now, the FSS has requested corrections by providing detailed instructions, even for incomplete registration statements. However, as certain issuers and underwriters continued to submit insufficiently revised statements, leading to repeated corrections, the agency decided to supplement the related system.

Accordingly, while the initial correction request will still provide detailed guidance on necessary improvements, if subsequent revised statements remain inadequate, the correction request will be strengthened. In such cases, the correction request will only note that "the submitted revised registration statement insufficiently reflected the required corrections," and this information will be released to the market and investors through the DART disclosure system.

An FSS official explained, "The aim is to incentivize underwriters to perform appropriate due diligence in their underwriting and placement work, while also allocating review resources more effectively based on the completeness of the registration statement."

Securities Registration Statement Review Flowchart by Filing Level. Financial Supervisory Service

Conversely, when securities registration statements are thoroughly prepared, including detailed risk disclosures, the FSS will deliver its review results to companies as quickly as possible, helping facilitate seamless fundraising.

During the meeting, the FSS presented examples of well-prepared registration statements that required no correction and emphasized that, even when corrections are necessary for investor protection, the agency will operate its review work in a way that avoids unnecessarily prolonging fundraising timelines through comprehensive guidance.

Additionally, the FSS shared the results of evaluating the effectiveness of the IPO demand forecast system. Since the implementation of the revised system in July of last year, the proportion of mandatory lock-up commitments among allocated IPO shares for all institutional investors has risen by 48.7 percentage points, from 29.0% prior to the reform to 77.7%. For policy funds, the proportion of mandatory lock-up commitments increased by 59.2 percentage points to 95.0%, up from the previous 35.8%. An FSS official noted, "This demonstrates the effectiveness of system reforms that incentivize long-term institutional ownership."

However, among all lock-up commitments, those with a relatively short 15-day duration account for the highest ratio, and the strengthening of participation conditions for private equity managers and discretionary investment firms has yet to yield significant effects. The FSS stated it will continue to address areas requiring further improvement so that the IPO market transitions from short-term speculation to mid- and long-term investment based on company fundamentals.

Participants also discussed the pre-demand forecast and cornerstone investor systems set to be introduced in November. The pre-demand forecast system allows underwriters to provide company information to institutional investors and gauge desired purchase prices and volumes before submitting the securities registration statement. The cornerstone investor system grants advance allocation of some IPO shares to institutional investors committed to a minimum holding period, with the goal of recruiting long-term investors and reducing post-listing price volatility.

An FSS official stressed, "For these systems to work as intended, underwriters play a critical role in conducting sufficient due diligence, setting appropriate offering prices, and allocating IPO shares reasonably to uncover mid- to long-term investors." The proposed amendments to the Capital Markets Act containing these provisions passed the National Assembly in April, and detailed implementation measures are being established in subordinate regulations, currently open for public comment (July 30–September 8).

The FSS plans to reflect the opinions gathered during the meeting in future review and system operations for securities registration statements, and will share relevant information through briefings and various other channels.

This content was produced with the assistance of AI translation services.