This article was published on July 7, 2025, at 5:29 p.m. on the ChosunBiz MoneyMove site.
The Korea Exchange will ease the stock lock-up (mandatory holding commitment) standards required for new listings by venture capital (VC) firms. While it had effectively mandated the lock-up commitment to stabilize stock prices and protect investors immediately after listing, the exchange has decided to revise its criteria to allow for differential application based on periods.
According to financial investment industry sources on the 7th, the Korea Exchange announced during a private meeting discussing listing review issues held with securities firms last week that it would establish predictable criteria regarding the lock-up of VC shares in new listings. Additionally, it noted that it would finalize and share the related standards as early as this month.
The key focus is expected to be on allowing differential application of the sale restrictions and durations based on the investment timing of financial investors (FI) such as VCs. There is also a strong possibility that lock-up exemptions will be normalized for shares held for over two years from the listing preliminary review application date.
Previously, the Korea Exchange required that preliminary listing applications include the scale and duration of lock-up commitments from financial investors such as VCs and used them as key assessment criteria. The goal was to prevent FIs from mass selling shares on the first day of listing, which would reduce stock price volatility and protect investors.
In particular, the Korea Exchange has encouraged that the shares available for circulation on the first day of listing be kept at less than 30% of all listed shares, effectively compelling VCs and other FIs to commit to mandatory holding. The establishment of lock-ups has become a de facto compulsory regulation for VCs, who rely on initial public offerings (IPOs) as the primary means for recouping their investment.
In principle, venture capital or professional investors can be exempted from lock-ups for shares held for over two years from the listing preliminary application date. However, if deemed necessary by the Korea Exchange, the lock-up period may be set for a maximum of two years, exceeding one month.
A source in the VC industry said, "In the case of companies with small major shareholder equity or unfulfilled profit technology special listings, we have especially required VCs to commit to voluntary lock-ups more strongly," adding, "As the amount of lock-up is a review element, it was effectively a mandatory regulation for VCs that need to recoup their investments."
S2W, which submitted its securities registration statement targeting a listing on the KOSDAQ market on the 27th of last month, has all FIs committing to a lock-up of 1 to 3 months. One VC, an early investor in S2W, committed to a maximum 3-month sale restriction even considering the investment fund's maturity in the event of a delay in S2W's listing.
There are analyses suggesting that the mandatory lock-up on VCs has led to excessive price surges on the first day of listing, which has resulted in the easing of criteria. While the volume of VC shares is restricted, institutional investors who successfully bid high prices during demand forecasting sell large amounts of shares on the first day of trading.
Within the VC community, there have been continued criticisms that the Korea Exchange's mandatory lock-up is shortsighted. While the volume of transactions peaks on the first day of listing, when VC shares are released, they can be absorbed in the market. However, this has led to recurring situations where stock prices drop even further after the volume of transactions decreases and VC holdings are released.
Amid this, starting with corporations submitting securities registration statements this month, a revised demand forecasting system that expands the ratio of mandatory holding commitments for institutional investors will be applied. There is also an evaluation suggesting that the government's recent push to invigorate the venture investment market has led to the easing of the Korea Exchange's lock-up for VCs.
Financial authorities decided to reform the initial public offering (IPO) demand forecasting system to eliminate the trading practices of institutional investors who received higher offerings and sold public shares on the listing day for profits. Specifically, more than 40% of the allocation for institutional investors will be prioritized for those with mandatory holding commitments.
A source from the securities industry noted, "The priority allocation of public shares to institutions with mandatory holding commitments indicates that as means of stabilizing public offerings are emerging, the Korea Exchange seems to have changed its direction," adding that "The enforcement of lock-ups prompting delays in venture investment market recoveries and the lack of reinvestment capacity has likely weighed heavily on them."