SBI Securities penalized for manipulating IPO share price; Financial services agency orders one-week business suspension
Yomiuri Shimbun file photo
The financial services agency
1:00 JST, January 14, 2024
The Financial Services Agency has taken administrative action, including a partial suspension order, against SBI Securities Co., the largest online brokerage firm, for manipulating the market's initial share prices after initial public offerings (IPOs).
Because the company's executives led the manipulation of share prices, the FSA judged this to be a serious injustice.
From Friday to Thursday (January 12 to 18), SBI Securities is prohibited from accepting IPO stock trading orders that involve soliciting investors on the listing date of IPO issues.
The FSA has asked SBI Securities to formulate a business improvement plan, including clarifying leadership responsibilities and strengthening the internal management system, and report the plan to the FSA by February 13.
According to the FSA, in 2020 and 2021, SBI Securities invited investors through brokers to place purchase orders for three IPOs managed by it, and accepted the orders to prevent post-listing opening prices from falling below the public offer price (POP ) lay. The FSA identified the involvement of SBI securities managers in manipulating stock prices.
It was found that the company had attempted to create the appearance that its businesses were successful in initial public offerings by manipulating initial stock prices in the market. However, it is now suspected of distorting market justice.
Trading is below the initial POP
According to the agency, when SBI Securities acted as the “lead manager” in handling the listing operations of the initial public offerings of three issues between December 2020 and September 2021, the agency requested nine institutional clients and 174 retail investors to place purchase orders for financial products through intermediaries and accepted her orders.
This was intended to prevent the “initial share price” at which new shares are traded on the market following their listing from falling below the POP at which new shares are offered to investors by an underwriter before their listing.
The company's executives at the time took the lead. According to the Securities and Exchange Surveillance Commission, they wooed customers by saying, “There is no need to actually buy it.” In fact, most of the orders were canceled on the day of the listing.
If the initial stock price in the market is found to be above the POP, an underwriter's performance is considered successful because investors who purchased stock at the POP benefit from unrealized gains.
Conversely, if the stock offerings sell poorly at the time of initial listing, the initial market price may be lower than the POP, resulting in the stock “trading below the POP.”
It is believed that SBI Securities aimed to prevent the initial market price from falling below the POP and wanted to enhance its reputation as a lead manager.
Top brokerage firms
SBI Securities has about 11 million customer accounts and prides itself on its status as an industry leader, even including securities giants like Nomura Securities Co. To attract customers in the retail sector, SBI Securities has taken measures by not charging commission on some of its deals.
Since the commission-free services will also lead to a decline in sales, SBI Securities has strengthened its corporate banking division and vigorously promoted underwriting services to sell new equity issues to investors in IPOs.
In IPOs, new issues are usually underwritten by several investment firms. According to SBI Securities, 49 companies conducted IPOs in the first half of fiscal 2023 and SBI was an underwriter for 47 of them, or 96%, more than any other brokerage firm. The company also served as lead manager, a role in which it can expect to earn higher commission income.
Sales conversation tools
Experts have long pointed to problems related to IPO stock prices. If a securities firm intentionally sets the POP lower than is considered appropriate, this may amount to an increase in the initial market price.
A person in the sales department of a large securities firm said it is common knowledge in the industry that “IPO stocks are profitable. Therefore, as a selling point, we only sell IPO stocks to our top customers.”
When a company gains recognition through a series of “successful performances,” it can close more deals and increase the number of transactions with its customers.
According to a survey by the Japan Fair Trade Commission, the average starting price in the US market is about 20% higher than POP, while in Japan it is about 50% higher.
Hiroyuki Kansaku, a professor at Gakushuin University, said: “Security firms are the guardians of the market and therefore must be neutral. “It is inexcusable for them to manipulate prices that should be determined by the market.”
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