Japanese Regulator Probes Underwriter Role In IPO Pricing

The Japan Fair Trade Commission (JFTC), the anti-monopoly watchdog, has begun investigating if securities companies and underwriters are pricing shares fairly in initial public offerings, Nikkei has learned. 

The move comes after the body noted that in many deals, the difference in offer prices before listing and opening share prices on debut have been larger than in Europe and the US. 

As a result, the listing company raises a smaller amount of capital, but investors come away happy with what is known as a “first-day pop.” Underwriters are known to be partial to this practice in order to garner financial support from investors. However, from the JFTC point of view, the investigation could open the way for underwriters to increase pricing for startups and allow them to raise more funds, given that Japan lags behind the rest of the world in nurturing young tech companies.

JFTC sent a questionnaire to about 100 domestic companies to ask if they felt they were able to sufficiently negotiate with underwriters in setting offer prices for their shares and if they were satisfied with the process. JFTC will also interview underwriters if it felt it necessary.

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