Korean stock market sets higher price cap for newly listed companies

Newly listed stocks in Korean stock markets will be able to see their prices rise by as much as four-fold on the day of listing, starting Monday.

According to the Korea Exchange on Sunday, the price limit for a newly listed company will be expanded within the range of 60 to 400 percent, with the public offering price as the reference price, under the new enforcement rules to securities and Kosdaq market regulations that takes effect on Monday.

Previously, the prices of a new stock on the listing day fluctuated between 63 percent and 260 percent of the offering price, with the opening price being set by bids received at a range between 90 and 200 percent of the offering price. Once the reference price is set, it moved within a range of 30 percent downside and upside, like other existing listed stocks.

Under the new rules, however, the initial public offering price will be established as the reference price, with the upper limit of the price fluctuation to be expanded to 400 percent of the reference price from the previous 260 percent.

Market insiders expect that the new rules will be effective in curbing excessive stock price increases on the first day of listing, while public offerings will attract attention from more investors thanks to the expanded upper limit.

The broader price limit is believed to make stock prices more challenging to reach the upper limit. Typically, it is rare for the price of a stock to surge four times the initial public offering price on the first day of trading. It is for this reason why the new measure is anticipated to have the desired effect of curbing overheated investors.

“Under the previous rules, the reference price often reached 200 percent of the offering price and then only moved within a 30 percent range, leading investors to anticipate the stock price reaching the ceiling price again the following day,” said an analyst. “The expanded price fluctuation range will enable investors to find an equilibrium price on the first day of listing and various information about the stock can be quickly reflected in the price.”

Some say that the higher price cap on the first day of listing may generate more investor enthusiasm if the offering is successful.

Local digital security company, Secucen Co., will be the first company subject to the new rules. Secucen achieved a new record for the year with a bid-to-ask ratio of 1,932.1 to 1 in its public offering to general investors last week. The demand forecast, held a week before on June 14 and 15, also recorded the highest competition rate of the year at 1800.86 to 1. Secucen is scheduled to be listed on the Kosdaq market on Thursday.

“This could intensify the cherry-picking in the IPO market, where attractive companies attract more investors on listing day, while companies with relatively low profiles are further marginalized,” said another analyst.