SEC eases IPO cornerstone investor rules in 2nd draft of proposed rule

Merkado Barkada

February 22, 2024 | 8:20am

The SEC’s proposed second draft [link] of its new set of rules on IPO cornerstone investors contains a few adjustments to ease the burden of the new rules on both issuers and cornerstone investors. A cornerstone investor (sometimes called an anchor investor) negotiates directly with the company doing the IPO and receives a guaranteed allocation at the final offer price. The first draft of the rules required the company doing the IPO to negotiate with and disclose the identity of any cornerstone investors before filing the preliminary prospectus with the SEC and required any cornerstone investors to hold their shares in lock-up for 30 days after the IPO. This has been amended to require negotiation and disclosure on or before the official pricing of the IPO, and the 30-day lock-up has been removed entirely.

MB bottom-line: The article has a lot of quotes from investment bankers and analysts cheering on the changes, which makes sense because the rules as they were written would likely have made it more difficult to sign cornerstone investors. As long-time readers will probably know, a lot can change from the preliminary prospectus to the pricing day, and not just concerning the IPO’s per share price. We’ve seen massive fluctuations in the offer timing (when it’s executed), size (number of shares), configuration (primary vs secondary), and purpose (use of proceeds) come through even after the preliminary prospectus is filed. Forcing the parties to agree before filing—and before the underwriters have taken a bite out of the book-building process—was bound to be sub-optimal. I support the SEC’s overall goal to regulate the flow of information to help equalize the quantity and quality of information received by retail investors as compared to a company’s potential cornerstone investors, and I think these adjustments are fair and reasonable given the on-the-ground realities in the deal-making world. 

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