The SEC released a draft memorandum for comment last week [link] which looks to regulate how “cornerstone investors” may participate in IPOs going forward. According to the SEC, a cornerstone investor receives IPO offer shares “with a guaranteed allocation at the final offer price”. The SEC notes that cornerstone investors “stimulate investor demand in an IPO”, and can “lend credibility”, “boost confidence”, and “deliver a positive signal to the market.” That said, the SEC is looking to: (1) regulate the information that a potential cornerstone investor might receive about an IPO to make sure that they are not provided with “any material information beyond that [in the prospectus]”, (2) require disclosure of cornerstone investors in any IPO prospectus, (3) require cornerstone investors pay the same price as retail, and (4) submit cornerstone investor shares to a 30-day lock-up from the IPO.
MB bottom-line: While IPOs are not necessarily top-of-mind right now for the market, it’s good to see the SEC thinking ahead to improve the rules before the next bull improves “market conditions” and all the potential IPOs come crawling out of the bushes with big dreams and preliminary prospectus. I particularly like how retail-focused the changes appear to be. I’m in favor of anything that requires issuing companies to standardize the price and information given to all potential investors. I don’t think we’ve had a cornerstone investor controversy in recent memory, but that doesn’t mean there isn’t space to address these issues and add certainty to the IPO process for investors. Good job, SEC!
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