FSS to publicly disclose inadequate securities filing corrections on DART

The Financial Supervisory Service will publicly disclose cases in which issuers and underwriters fail to adequately address correction requests for securities registration statements.

Under the new approach, the FSS will provide detailed guidance on required revisions with the first correction request, but if a filing remains deficient afterward, it will post that fact on DART. The regulator said the two-tier system is designed to reduce repeated corrections and help companies raise funds more smoothly.

The FSS announced the plan Friday at a meeting with securities firms on initial public offering and rights offering underwriting operations, saying it would differentiate correction requests for securities registration statements into two stages to improve review efficiency.

When a registration statement is found to be deficient, the FSS issues a detailed correction request outlining what needs to be fixed. However, some issuers and underwriters had come to rely on this process, submitting inadequate initial filings or making only partial revisions, leading to repeated correction cycles.

The FSS said the practice not only delays a company's fundraising schedule but can also burden the review of other companies' filings.

In response, the FSS said it will continue to send detailed correction requests at the first stage as it does now, but if a resubmitted statement is still found lacking, it will only notify the parties that the revised filing insufficiently reflected the requested corrections — and will disclose that fact through DART.

When a filing faithfully describes investment risk factors and other required information, the FSS said it will communicate review results as quickly as possible to facilitate smooth fundraising. It added that even when corrections are unavoidable for investor protection purposes, it will manage the review process to prevent fundraising timelines from being prolonged, through thorough guidance.

The meeting also shared findings showing that reforms to the book-building system, which took effect in July last year, have encouraged institutional investors to hold IPO shares for longer periods. The reforms were aimed at preventing institutional investors from distorting the IPO market through short-term flipping of public offering shares, with the core measure being an expansion of mandatory lock-up commitments for institutional investors.

According to the FSS, the share of mandatory lock-up commitments among total public offering shares allocated to institutional investors rose from 29.0 percent before the reform to 77.7 percent, while the lock-up commitment rate for policy funds improved from 35.8 percent to 95.0 percent. However, the FSS noted that 15-day commitments — the shortest period — still accounted for the largest share, and that tightened eligibility requirements for private equity managers and investment advisory firms to participate in book-building had yet to produce a significant practical effect, pointing to areas requiring further improvement.

In addition, the FSS urged underwriters to fulfill their role in connection with the pre-book-building and cornerstone investor system set to be introduced in November. The cornerstone investor system pre-allocates a portion of public offering shares to institutional investors that commit to holding them for a set minimum period.

The FSS said underwriters must properly manage the timing and content of non-public information during the pre-book-building process, and must also thoroughly verify the independence and eligibility of investors during the cornerstone investor selection process.