Japan’s trade watchdog cautioned Mizuho Financial Group Inc.’s brokerage unit, saying the company priced newly listed stocks in a way that could undermine competition and cause the issuing firms “unfair disadvantages.”
(Bloomberg) — Japan’s trade watchdog cautioned Mizuho Financial Group Inc.’s brokerage unit, saying the company priced newly listed stocks in a way that could undermine competition and cause the issuing firms “unfair disadvantages.”
Mizuho Securities Co. set prices on some initial public offerings in 2020 and 2021 at levels below where the issuers said they should be, the Japan Fair Trade Commission said in a statement Thursday. The brokerage asked the companies to accept its proposed prices, without closely considering the firms’ own research results or adequately explaining why it wouldn’t factor them in, the FTC said.
While the warning doesn’t involve any fine or other penalties, it suggests the government is getting more serious about removing what it sees as obstacles to its plan to turbocharge Japan’s startup ecosystem. It was the first time for the commission to issue a caution in relation to IPO price-setting, Naohiko Komuro, director of the investigation division, said at a news briefing.
Read about a Japan panel’s proposals to improve IPO pricing
The relevant stocks underwritten by Mizuho surged to more than double their IPO prices on the first day of trading, meaning the issuers could have raised more money had the brokerage set prices based on their views, the commission said.
Such practices could lead to situations where a lead underwriting bank with strong bargaining power will set low IPO prices in a “one-sided” manner, the FTC said. That could cause newly listed companies unjust disadvantages and “affect fair, free competition,” it said.
“We take this caution seriously and will continue to make efforts to ensure our IPO price-setting process is rational and appropriate,” Mizuho said in a statement. The firm will comply with laws while striking the right balance between ensuring investor protection, helping issuers properly raise funds, and fostering sustained healthy market growth, it said.
The commission said it stopped short of labeling the brokerage’s past conduct a violation of Japan’s antitrust law, partly because Mizuho offered the issuing firms detailed explanations about the rationale behind its proposed prices. Mizuho has also taken steps since March 2021 to make its IPO price-setting fair, neutral and precise, it said.
The Japanese government’s growth strategy in 2021 called for a review of IPO price-setting, noting declines in the average amount of money raised per listing. The Japan Securities Dealers Association has proposed measures in response to improve pricing by its members.
Mizuho ranked fourth among managers of IPOs in Japan in the fiscal year ended March 31, following Sumitomo Mitsui Financial Group Inc., Nomura Holdings Inc. and Daiwa Securities Group Inc., according to data compiled by Bloomberg.
(Updates with comment from FTC official in the fourth paragraph)
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