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SEC Issues Guidelines for Cornerstone Investors in Initial Public Offerings

On 11 April 2024, the Securities and Exchange Commission (“SEC”) issued the SEC Memorandum Circular (“MC”) No. 8, series of 2024 providing the guidelines for Cornerstone Investors in Initial Public Offerings (“IPO”). Recognizing that Cornerstone Investors stimulate investor demands and boost the confidence of the market, the SEC MC No. 8 guidelines provide for rules on:

  1. Cornerstone investors and their access to information;
  2. Cornerstone investment agreements; and 
  3. Disclosures in the IPO prospectus.

A cornerstone investor is defined as an investor in the IPO of a registrant’s shares to whom offer shares are preferentially placed with a guaranteed allocation at the final offer price, provided that, the final offer price is within the offer price range preferred by the cornerstone investor and agreed with the issuer.

Under SEC MC No. 8, issuers shall ensure that cornerstone investors are not provided with any material information beyond what is available to the public and/or that to be contained in the final prospectus.

Agreements known as “Cornerstone Investment Agreements” shall form part of the material contracts in the issuer’s registration statement required to be submitted to the SEC. It must also be signed at the latest on or prior to the pricing event of the IPO. The cornerstone investor shall firmly commit to purchasing the shares, provided that the final offer price falls within the preferred range as agreed upon.

Disclosures in the IPO Prospectus

The following information relating to cornerstone investors shall be disclosed in the issuer’s final prospectus:

  1. Number of participating cornerstone investors and their respective profile descriptions;
  2. Number and type of securities proposed to be issued or offered to cornerstone investors; and
  3. Such other information relevant to the cornerstone investment.

If an IPO has a cornerstone investor, the following shall be applied: 

  1. Cornerstone investors shall be identified in the final prospectus;
  2. A cornerstone investor’s placing must be at IPO price; and
  3. Each cornerstone investor may have representation in the board of the registered issuer, provided it owns the minimum required shares for election.