Regulators to Strengthen Roles of Underwriters

By Park Hyong-ki

Staff Reporter

The Financial Supervisory Service (FSS) said it will boost the roles of underwriters or securities companies mediating between share issuers and investors in line with revised rules governing third-party allotments.

It noted that it will encourage underwriters to become more involved in due diligence of companies they represent prior to share offerings through initial public offering and issuance of shares to third-party investors.

A large number of listed companies that offered shares to non-shareholding third parties had been put on the regulators' watch-list as such capital raising has sharply hiked stock prices on rumors of allocating shares to celebrities or notable figures.

Under the revision, the FSS and the exchange will enforce a lock-up period of 180 days on such companies suspected of unfair trading through a third-party allotment, prohibiting company insiders or major shareholders from unloading their shares within that period.

The regulatory body said it aims to remove illicit practices concerning third-party allotment by making companies issue shares through underwriters in public offerings.

However, Jung Yong-sun, assistant governor of the FSS, noted that while it moves to strengthen the roles of securities companies in line with deregulations on the capital market, the regulatory body will regularly evaluate their underwriting performances.

``We will adopt a `scoring system' on underwriters,'' he said.

He added that the FSS will develop standard guidelines for brokerage houses to follow when conducting underwriting operations by the end of the first quarter of this year. The FSS plans to check underwriters on whether they are properly providing and disclosing business data of companies and information concerning risks to investors wishing to subscribe to shares.

Currently, securities firms are not obligated to give such information if their customers or investors do not demand it. But under the Capital Market Consolidation Act, they will have to issue business reports and explain risk factors to investors prior to allocating shares in public offerings.

The FSS will also boost its inspections of quarterly and semiannual business reports disclosed by all listed companies.

phk@koreatimes.co.kr