The Securities and Exchange Commission (SEC) is requiring companies conducting an initial public offering (IPO) of their shares to submit documentation on investors that form part of the share sale’s cornerstone investors.
A cornerstone investor is given priority for share allocation in an IPO.
The new rule – the first time the SEC released such a guideline – is covered by the agency’s SEC Memorandum Circular No. 8 Series of 2024.
The SEC said a rule covering a cornerstone investor is necessary given that “such investors have been shown to stimulate investor demand in an IPO, and have been seen to boost confidence and deliver a positive signal to the market.”
Under the guidelines, cornerstone investment agreements shall form part of the material contracts in an issuer’s registration statement required to be submitted to the SEC.
“The agreement shall include the allocation guaranteed to a cornerstone investor, which must be signed on or prior to the pricing event of the IPO. The cornerstone investor shall firmly commit to purchase the shares, provided that the final offer price falls within the preferred range as agreed upon,” the SEC said.
The issuer must likewise 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, according to the regulator.
“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,”the SEC said.
“Information provided to such investors will be the same as what is made available to the public or those contained in the final prospectus,” it added.
