"Growth of the company or protection of individual investors?" What is the conclusion of the IPO controversy?

March 2, 18:22

“In Japan, initial public offerings = IPO prices are kept low, which may be hindering the growth of start-up companies.”

This controversy was raised by the government's Growth Strategy Council last year.

As I mentioned in the previous business feature, there was a heated debate with the participation of the Fair Trade Commission.

Then, on February 28, the answer as the securities industry was given, but there was talk about "whether it is the growth of Japanese companies / economy or the protection of individual investors" that has not been discussed openly until now. It reached.

Is it really settled?

(Hiroshi Nakazawa, Reporter, Ministry of Economic Affairs)

Is the initial stock price too low?

Why so few Japanese unicorns

Click here for the feature articles introduced earlier

What is the answer in the securities industry?

On February 28, the Japan Securities Dealers Association, which is made up of securities companies nationwide, released a report on IPO = initial public offering for companies to newly list their shares.

This is the conclusion after repeated discussions in a working group of securities company personnel, institutional investors, and experts.

In this, 19 issues were presented.

The main contents were as follows.

▽ Price when a company sells its stock for the first time with listing = "public price"

Make it possible to decide more flexibly according to the market situation ▽ It takes

about one month

from the approval of listing to the actual listing

→ Shortened to about 3 weeks

▽ Basis for calculating "public price" The

securities company responsible for the business carefully explains to the company side

It is a partial review of the IPO procedure.

Why in the first place?

Why was such a report published in the first place?

The trigger was the government's "Growth Strategy Implementation Plan," which was approved by the Cabinet last June.

In this, "Review of the pricing process in IPO" was included in order to "create an environment that creates and expands the scale of startups".

The higher the public price, the higher the amount of funds raised by the company associated with the listing.

However, the government's execution plan is to look at this "public price" and the price when trading is completed for the first time in the market after listing = "initial price". Points out that is large.

Some investors who were able to acquire shares at the public price can get this margin, but on the corporate side, no matter how much the "initial price" rises, it will not lead to an increase in the amount of funding.

If the public price was set higher, the company could have raised more money.

He urged the securities industry to review it, thinking that it might be hindering the further growth of newly listed companies.

It is based on the idea of ​​focusing on corporate growth and revitalization of the Japanese economy.

What is the judgment of "market keeper"?

After the government announced an action plan, the "Market Keeper" Fair Trade Commission set out to investigate.

In order to understand the actual situation of the pricing calculation process under the Antimonopoly Act, we conducted interviews with companies that have conducted IPOs in the past year.

And this January.

The FTC has released the results of the investigation.

For the first time, he expressed the view that if the public price is set low and it is recognized that the company has been disadvantaged, it may violate the Antimonopoly Act.

On the other hand, as a result of the fact-finding survey, it was concluded that no problematic cases could be confirmed under the Antimonopoly Act.

What is the actual public price?

What is the actual state of the public price?

Looking at the status of the public prices and initial prices of 125 companies listed in the last year, the average price increase is about 56%, and the initial prices are certainly much higher than the public prices.

When we ask executives and market participants of major securities companies, we point out that

1 is a strong market environment and

2) the existence of the Mothers market is

having an impact.

Last year, the Nikkei Stock Average hit the 30,000 yen level for the first time in 30 years and 6 months, and the huge fiscal mobilization of each country to support the economy of the Corona disaster helped the market to rise.

For this reason, investors are motivated and the initial price tends to be high.

In addition, more than 70% of the companies listed in the last year are listed on the Mothers market, where relatively small companies are listed.

Due to its small market capitalization, it is difficult for institutional investors who move huge amounts of money to make a profit, so it is a market with a high participation rate of individual investors.

Individual investors are more likely to secure profits by buying and selling in the short term rather than holding stocks over the long term.

In fact, when I talked to individual investors who are investing in IPO stocks through online securities, I thought, "If you can buy IPO stocks at the public price, the price will rise easily, so you can sell them immediately." There were many people.

So what's happening a little later, not just after listing?

I examined the subsequent stock price movements of companies listed last year.

Looking at the stock prices as of the end of January, before Russia's invasion of Ukraine, which has had a major impact on the market, 88 of the 125 companies that were newly released last year, or about 70%, were below the initial price or even the public price. Was there.

It shows that while the initial price rises, there are many stocks that fall sharply thereafter.

In addition, the initial price of 13 companies, which is 40% of the 33 companies listed in December 2021 when concerns about the future of the economy became stronger due to the influence of Omicron shares, fell below the public price.

Overall, it is hard to say that the public price is kept low, and some market participants say that the market conditions and the market environment peculiar to Japan may be the factors.

Is Investor Protection Appropriate?

"Investor protection" is essential for a healthy stock market.

In the discussions of the working group of the securities industry, there was even a debate about whether the current way of investor protection is appropriate.

One of them is the treatment of the so-called cancellation period, which is the "application period" when individual investors buy new public shares.

In the first place, regarding the management policy of a newly listed company, it is provided so that individual investors can cancel the purchase after obtaining a document called a prospectus and considering whether to really purchase it. The possible period is set to about 4 days.

However, due to this cancellation period, it is said that many individual investors double-book and triple-book through multiple securities companies in an attempt to increase the probability of getting the right to purchase popular initial public offerings. ..

It was pointed out that this would make it difficult to measure the true demand for the stock and to calculate the proper open price.

This "application period" does not exist in the United States, and there was an opinion in the discussion that it should be abolished.

However, in order to abolish it, it is necessary to revise the law, and the hurdles are higher, so it was postponed as "an issue that should be considered in the future".

Behind this, of course, is the idea that investor protection is important.

Continuing controversy over corporate growth or investor protection

The government's "Growth Strategy Execution Plan" also considers the introduction of a new system called "SPAC" as a means of promoting corporate growth and revitalization of the Japanese economy.

This is to list SPAC = special acquisition company first, and then acquire and merge unlisted start-up companies, etc., which has already been introduced in the United States, and discussions on whether to introduce it on the Tokyo Stock Exchange have begun. I am.

This system may be listed earlier than the IPO for start-up companies, and the amount agreed by both the SPAC side and the start-up company when it is acquired, so there is a sense of conviction in financing. There is a merit.

However, this SPAC has no specific business performance or merger plans at the time of listing, and since it raises funds from investors based on expectations for future mergers and acquisitions, it is also empty = "empty box". It is said.

Therefore, from the perspective of investor protection, it has been pointed out that the risks are greater than those of conventional financial products such as stocks.

The landing point has not yet been seen as to what kind of conclusion will be reached.

Further discussions are likely to continue on how to balance the

"growth of companies or the protection of investors" and revitalize the Japanese economy.

Kei Nakazawa ,

Reporter, Ministry of Economic Affairs

Joined in 2011

After working at the Fukushima Bureau and Fukuoka Bureau, he is currently in charge of the financial industry.