THE public is advised that the Securities and Exchange Commission (SEC) en banc, in its meeting held on Jan. 18, 2024, resolved to expose the draft Memorandum Circular on the Guidelines for Cornerstone Investors in Initial Public Offerings (IPO).

Under the proposed guidelines, a cornerstone investor is an IPO investor in an initial public offering 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 purchase price range preferred by the cornerstone investor and agreed with the issuer.

On the other hand, a cornerstone investment agreement is described as an agreement that must be first signed before the submission of the issuer's preliminary prospectus to the commission with a firm commitment on the part of the cornerstone investor to purchase the shares of the issuer within the preferred price range as agreed upon by the parties.

In all cases, the issuer shall ensure that cornerstone investors are not provided with any material information beyond what is contained in the final prospectus.

As a brief background, cornerstone investors are notable features in some IPOs not only here in the Philippines but also other jurisdictions. Studies show that cornerstone investors are proven to stimulate investor demand, and, in some instances, contribute to the credibility of the company that is proposing to do an IPO.

Having cornerstone investors is seen to boost confidence and deliver a positive signal to the market. Their participation not only promotes the success of the IPO but also upholds a degree of confidence in the stability of the company's share prices.

Section 4 of the proposed guidelines provides the relevant information about the cornerstone investors that needs to be disclosed in the prospectus. Notable of which is the number of participating cornerstone investors and their respective profile descriptions; the number and type of securities proposed to be issued or offered to cornerstone investors; the nature of sales or subscriptions; the number and characteristics of securities that are sold privately to cornerstone investors; and the prices applied to cornerstone investors.

On the other hand, Section 5 provides the following requirements that must apply whenever an IPO has a cornerstone investor, namely: the cornerstone investors shall be identified in the final prospectus; a cornerstone investor's placing must be at IPO price; the IPO shares placed are subject to a lock-up period of 30 days starting from the listing date; and each cornerstone investor may have representation in the board of the registered issuer, provided it owns the minimum required shares for election.

The SEC welcomes any feedback from the public by submitting written comments on or before Feb. 1, 2024, through email at msrdsubmission@sec.gov.ph and ggjarugay@sec.gov.ph with our proposed subject of "COMMENTS ON THE PROPOSED GUIDELINES FOR CORNERSTONE INVESTORS IN INITIAL PUBLIC OFFERINGS."

To know more about the full details of the proposed guidelines for cornerstone investors, I encourage you to visit our official website and check through the following link: https://www.sec.gov.ph/wp-content/uploads/2024/01/2024Notice_GUIDELINES-FOR-CORNERSTONE-INVESTORS-IN-INITIAL-PUBLIC-OFFERING-FINAL.pdf

About the writer: Kelvin Lester K. Lee is a commissioner of the Securities and Exchange Commission (SEC). The views and opinions stated herein are his own. You may email your comments and questions to oclee@sec.gov.ph.

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