The Securities and Exchange Commission (SEC) laid down the guidelines for cornerstone investors in initial public offerings (IPOs) in line with its efforts to boost investor participation in the capital market.
A cornerstone investor is an investor who agrees in advance to subscribe in an upcoming IPO. Such investor is usually brought into the IPO process before the formal bookbuilding process starts and is guaranteed allocation at the final offer price.
The SEC said in a statement Thursday it issued Memorandum Circular No. 8, Series of 2024, requiring companies that plan to go public to include in their IPO registration statements the cornerstone investment agreements they have entered into.
The agreement should include the allocation guaranteed to a cornerstone investor, which should be signed on or prior to the pricing event of the IPO.
It requires the cornerstone investor to firmly commit to purchase the shares, provided that the final offer price falls within the preferred range as agreed upon.
The issuer should also disclose in its final prospectus certain details about its cornerstone investors, including the number of participating cornerstone investors and their respective profile descriptions; the number and type of securities proposed to be issued or offered to such investors; and other information relevant to the investment, the SEC said.
MC No. 8 aims to ensure that cornerstone investors will not be provided any material information beyond what is in the final prospectus.
An entry of a cornerstone often stimulates investor demand in an IPO and are seen to boost confidence and deliver a positive signal to the market, according to the SEC.
A cornerstone investor may also have representation in the board of the registered issuer, provided that it owns only the minimum required number of shares for election.