Market participants want to change the principle of distribution of securities during IPOs and SPOs
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Professional participants in the securities market plan to review the current principle of allocation during IPOs and SPOs, when this is decided between the issuer and the placement organizer, since it “does not work in the case of a large number of retail investors.” Among the possible solutions is to determine the share of individuals and institutional investors in advance and publish the rule at the beginning of the collection of applications. The Central Bank is ready to consider ideas, but emphasizes the voluntary nature of their implementation.
The problem with allocation (distribution of securities during IPOs and SPOs between different groups of investors) was raised on March 5 by Aisha Kubezova, director of electronic markets at Sberbank. She noted that the bank is going to increase the transparency of the mechanism, and also intends to discuss changes for the entire market with the regulator, issuers and the professional community.
Sberbank clarified that they want to propose to the Central Bank the idea of the issuer disclosing the principles of allocation when collecting applications from investors.
The Moscow Exchange, for its part, plans to introduce the “Smart Allocator” service, which will contain a set of rules and options for determining allocations and satisfying investor requests based on them.
The problem of distribution of securities during placements arose against the background of the active participation of retail investors in them, the number of which sometimes exceeded 100 thousand people. As a result, in some IPOs, for example Diasoft, most investors received only 1-3 shares (see. “Kommersant” then February 14).
NAUFOR President Alexey Timofeev emphasizes that allocation is a matter of discretion of the issuer and investment bank: for greater transparency and predictability, they can disclose the principle. “But I’m not sure that this should be made mandatory for everyone,” he notes. A portfolio manager of a large management company told Kommersant that all over the world the issuer himself determines the allocation – “this is his preemptive right”, to whom and how many securities to give, in which cases preference is given to private investors, in which to institutional ones.
However, this approach developed in the context of the prevalence of institutional or large private investors in placements. Now, especially in the Russian market, the balance of power has shifted in favor of small and medium-sized retail investors.
As Kommersant’s interlocutor in a large brokerage company told, on some transactions, oversubscription reaches 10–20 times the size of the transaction, as a result, the allocation to retail investors is only 1–2%. This, the broker believes, “does not contribute to the development of the domestic investor.”
Yuri Solovyov, head of the board of directors of VTB Capital, in an interview “Kommersant” November 22, 2021:
“In any placement, even with a large oversubscription, a balance is needed between retail, which is more of a speculator, and an institutional, long-term investor.”
Director of IPO Products at BCS World of Investments Andrey Vanin confirms that investors are often dissatisfied with either the size of the allocation or the rules for determining it, “this is a completely opaque mechanism in which the rules of the game become known after the “final whistle”.” In most cases, the final allocation is disclosed on the day the trading begins, but investors must reserve a significant amount of funds in advance, adds Sergey Shemyakin, head of the portfolio solutions department at Go Invest.
Capital Lab partner Evgeny Shatov believes that to solve the problem, “it is enough to regulate the requirements for issuers on the procedure and principle for approving applications.”
If you limit the volume of purchases per person and keep an open register with the number of applications in the book, then you can focus on the final allocation several days before the auction, the expert explains. Mr. Vanin proposes to determine the shares of individuals and institutional investors in advance by publishing allocation rules at the start of collecting applications.
There are other ideas, primarily regarding the placement mechanism in case of significant oversubscription. According to Anton Malkov, head of capital markets at Tinkoff Bank, you can simply increase the volume of the transaction. Although, he admits, not all issuers are ready to sell more shares within the announced price range.
In addition, it is worth creating the possibility of changing the price range, Mr. Malkov believes, which in the current conditions is technically impossible to do, and it is unclear to what level to increase it, since there is no working price discovery mechanism. For example, in the case of the placement of Mosgorlombard at the end of last year (see. “Kommersant” dated December 22, 2023) the company actually had to conduct a new placement with new price parameters. Mr. Malkov believes that early closure of the book of applications is possible (it was implemented during the IPO of Carsharing Russia and Diasoft), but there are “regulatory restrictions, including the timing of the implementation of the preemptive right.”
The Bank of Russia noted that the current regulation does not limit issuers and brokers from disclosing the principles of allocation during IPOs and SPOs, but does not oblige them to do so. The Central Bank is ready to “consider initiatives of professional participants aimed at increasing the transparency of the IPO.”
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