Photo/Illutration The Japan Fair Trade Commission’s report on an IPO published in January 2022 which the regulator used to investigate the Mizuho Securities’ case (Yuto Yoneda)

The Japan Fair Trade Commission on April 13 rebuked Mizuho Securities Co. for setting initial public offering (IPO) prices of newly listed stocks too low, which could lead to violating the Anti-Monopoly Law. 

According to the FTC, Mizuho Securities acted as a lead manager for 21 companies that were listed on the Tokyo Stock Exchange between June 2020 and May 2021.

For one of the 21 companies, Mizuho Securities set the tentative price of its shares without sufficiently taking into account another security firm’s opinion. 

For another company, Mizuho Securities determined the price range of its shares based on an institutional investor’s views from an interview whose neutrality was called into question.

Mizuho Securities asked the two companies to accept the tentative price or the price range determined in this fashion, according to the trade watchdog.

After that, Mizuho Securities determined the IPO prices of the two companies’ shares based on such a tentative price or price range.

On the two companies’ first days of trading on the Tokyo Stock Exchange, their shares’ first quotations--which are determined by investors--were more than double the IPO prices.

Mizuho Securities possibly prevented the two companies from securing more funding by setting low IPO prices, the FTC said.

IPO prices are the starting prices of companies’ shares at which they are sold to investors on a stock exchange when the firms go public.

The IPOs are determined in discussions between the companies that will be listed on a stock exchange and securities firms that will lead the IPO processes, known as “lead managers.”

They are determined after lead managers follow a procedure including tentative pricing of shares when a stock exchange approves the listing of companies and setting the price range for shares while taking into consideration institutional investors’ views.

If IPO prices are too low to match the actual value of companies, the firms will secure less funding.

The FTC said that even though Mizuho Securities’ conduct is not an outright violation of the Anti-Monopoly Law, it could lead to unilateral determination of low IPO prices by lead managers.

This could lead to unfairly harming companies going public and preventing fair and free competition.

The trade watchdog instructed Mizuho Securities to set IPO prices only after having thorough discussions with listing companies and gaining approval on IPO prices from them and to not perform conduct that could be in violation of the law.

It is the first time that FTC has publicly named a security firm in admonishing such conduct.

Mizuho Securities published a statement on its website saying, "We sincerely accept the admonition and will ensure that our IPO price-setting process will be reasonable and appropriate.”

According to the Cabinet Secretariat, the first quotations for companies’ shares are 48.8 percent higher than their IPO prices on average in Japan.

The figure is higher than 17.2 percent in the United States and 15.8 percent in Britain.

The higher the first quotation is than the IPO price, the more money investors make.

Some observers say that securities firms deliberately set lower IPO prices to retain customers.

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