Investors will now earn interest on the deposits they temporarily place with brokerages when applying for initial public offerings.
Daishin Securities (003540) will pay an annual 1% on IPO subscription deposits of up to 1 million won and 0.6% on amounts above that, according to the financial investment industry on the 23rd. The policy applies to companies that filed registration statements on or after Sept. 21. Because institutional book-building and retail subscriptions follow a filing, the first IPOs in which investors actually receive interest are expected from October.
Until now, IPO investors paid half of their subscription amount upfront as a deposit and received the balance back two to three trading days later, minus the value of shares allocated and subscription fees. During that window, brokerages parked the deposits with the Korea Securities Finance Corporation and other institutions to generate investment income, but paid investors no interest for the period between the subscription date and the refund date. Because popular IPOs draw anywhere from several trillion to tens of trillions of won in a matter of days, critics have long argued that returns generated from investor money should be passed back to investors.
Daishin's pre-emptive move is expected to accelerate action across the industry. If interest on subscription deposits takes hold as a new incentive for drawing IPO investors, other brokerages are likely to follow suit. "We decided to pay interest on subscription deposits in order to provide benefits to clients even during the period when their money is on deposit in the IPO subscription process," said Lee Yong-wook, head of Daishin Securities' wealth management division.
The government has also begun work on regulatory changes. The Financial Services Commission said in a July briefing to the president that it would pursue a plan to pay interest on IPO subscription deposits. Under review is an approach that would weigh investment income from the deposits against costs incurred in the subscription process and return any remaining profit to investors. Park Yong-jin, vice chairman of the presidential Regulatory Rationalization Committee, had earlier stressed the need to return income generated from deposits entrusted by investors back to those investors.
