The Securities and Exchange Commission (SEC) is gathering opinions from related parties to review rules and regulations concerning initial public offering (IPO) share allocation to patrons in order to control share price manipulation following listing and to balance the number of shares sold to general investors.
The securities watchdog is set to launch the second hearing next quarter with opinions from investment bankers, financial advisers, underwriters, and investors from the first hearing held earlier this year included in the new draft, said a source at the SEC who requested anonymity.
The new regulations are expected to be completed by year-end, the source said.
Offering IPO shares to patrons has been blamed for share price spikes following debuts, even though some of these patrons never support the companies' businesses, putting retail investors at a disadvantage.
According to the new draft, the SEC clearly defines patrons as persons who benefit the company, and it set a cap for IPO share allocation to these persons at 25% of total IPO shares.
Shortening the reporting period for IPO share sale results to seven days from 45 at present and doubling the lock-up period for private placement shares to be offered below the IPO price to 180 days from 90 are also included in the new draft.
Somsak Sirichainarumitr, managing director of Asset Pro Management, threw his support behind the SEC's revisions, saying they are more practical, will stem a channel used for share manipulation and will balance retail investors' right to access IPO shares with that of wealthy investors.
However, he said it would be difficult for the new draft to prevent IPO share manipulation as those with bad intentions will seek new ways to exploit the system. Good corporate governance from related parties, including company owners and financial advisers, is needed to deal with IPO shenanigans, said Mr Somsak.
Moreover, providing investor education programmes, especially concerning share price evaluation, is the best way to protect investors because it allows them to judge for themselves whether the market price is attractive, he said.
"Investment education programmes take time but they will strengthen the market in the long run," said Mr Somsak.
There have been many cases where IPO shares were offered to wealthy investors even though they have never been patrons of those companies, he said.
Some listed companies' major shareholders, financial advisers and underwriters have colluded in offering IPO shares to patrons, causing share prices to double on the first day of trading though their prices are not based on real demand, said a securities broker who requested anonymity.