Want to take part in a company’s initial public offering (IPO) but don’t have hundreds of thousands of pesos to buy stocks? Fortunately for most of us, the Local Small Investors (LSI) program of the Philippine Stock Exchange can help address this common problem of stock market investors.
Local Small Investors (LSI) Program
The PSE’s Local Small Investors (LSI) program was designed to let “small-time” investors, or those who may not have lots of cash, to invest in stocks and participate in a company’s IPO.
How is this possible? With only P100,000 an investor can already buy IPO stocks and start trading in the stock market. An LSI or a “local small investor” is a “share subscriber intending to subscribe to a minimum board lot or whose subscription does not exceed P100,000.”
Before September 2018, the PSE allowed LSIs to invest a maximum of P25,000 only. But on September 12, 2018, the PSE released a memo announcing the revision of some of the LSI rules, specifically increasing the P25,000 limit to P100,000. This means anyone who would like to take part in an IPO with P100,000 or less can become an LSI and will thus be prioritized.
According to the PSE, any company intending to conduct an IPO must allocate shares to local small investors, giving them prioritized opportunity to invest in the Philippine stock market.
Let’s see how you can invest in an IPO through the LSI program. Here are sample LSI rules from a typical IPO prospectus in the Philippine Stock Exchange.
How to Invest through the LSI Program
Eligible investors. Any person of legal age or any duly organized and existing corporations, partnerships or other corporate entities in the Philippines regardless of nationality may invest as a Local Small Investor (LSI). Multiple bookings, that is, two or more applications by the same applicant, will not be allowed. All applicants must have a broker account upon submission of the application.
Number of shares that can be bought. Each local small investor (LSI) may order the allowed number of shares in accordance with the PSE Board Lot table, as long as the total investment amount does not exceed P100,000. LSI orders beyond P100,000 will be rejected. Those interested to purchase more shares will have to go through the regular IPO offer purchase and not through the LSI program.
Mode of Payment. LSI applicants may pay through cash or check as allowed by the stockbroker. The cashier’s, manager’s, corporate, or personal check should be drawn against a bank account with an authorized Bangko Sentral ng Pilipinas bank.
How to Apply. Individual applicants need to personally submit to their stockbroker the LSI application form (you may get this from your broker), photocopy of any two valid and current government-issued IDs identification, and the check payment.
Sample LSI Guidelines: Double Dragon (DD) IPO
Here’s an application of the old LSI rules (cap of P25,000), as implemented during the IPO of Double Dragon Properties (DD) back in 2014. Again, take note, effective September 2018, the LSI investment limit has been raised to P100,000.
Double Dragon Properties is a 50-50 real estate joint venture firm between Mang Inasal owner Edgar Injap Sia II and Jollibee founder Tony Tan Caktiong. The company offered more than 579.73 million common shares at an IPO price of P2.00 per share.
Double Dragon offered 10% of its total shares to local small investors as part of the LSI program, specifically:
Order Size. Each LSI is entitled to order a minimum of 5,000 shares; additional orders shall be in increments of 1,000 shares. In no instance, however, shall the total value of the subscription of each LSI exceed P25,000. Any order amount exceeding P25,000 will be rejected. Multiple bookings, or having two or more applications by the same applicant, will not be allowed.
Given Double Dragon’s P2.00 per share offer price, an LSI was able to subscribe to a maximum of 12,000 DD shares.
Application Process. Local small investors must submit their application in person to their broker. Applications submitted by representatives or any other person other than the named applicant will not be accepted. Only one (1) application per LSI will be allowed.
Application Schedule. The offer period for LSI started on March 26, 2014 and ended on April 1, 2014 right before the start of listing in the PSE. DD shares were eventually listed and became part of the PSE on April 7, 2014.
After submission, the investor will have to wait for a few days before he or she will know if an IPO allocation is awarded to him/her by the stockbroker.
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