Japanese Underpriced IPOs Could Cause Antitrust Concerns

Japan’s competition regulator is expected to warn brokerage houses that undervaluing initial public offerings (IPOs) on the stock exchange could be a violation of the nation’s antimonopoly law, sources told The Japan Times.

The Japan Fair Trade Commission (JFTC) is planning to issue a report outlining efforts to assist companies newly listed on the Tokyo Stock Exchange to gain financing, the newspaper reported.

Typically, share prices on the first day of trading in Japan exceed IPO prices by wide margins, larger than in the United States and Europe.

Last summer, Nikkei Asia reported the JFTC commenced an investigation over whether securities companies and underwriters are pricing IPO shares fairly.

The action was taken, the report stated, after regulators observed deals where the difference between the per share offer price prior to the listing and opening share prices was substantially larger than in Europe and the US.

While the listing company raises a smaller amount of capital, investors are thrilled with what has been called “first-day pop,” the news outlet reported. Underwriters like the practice because it attracts financial support from investors.

But the investigation by JFTC could allow the underwriters to increase pricing for startups and allow them to raise more money since Japan trails the rest of the world in cultivating tech startups.

Want more news? Subscribe to CPI’s free daily newsletter for more headlines and updates on antitrust developments around the world.