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Japan’s antitrust watchdog said on Friday that brokerage houses could be acting illegally if they knowingly underprice initial public offerings (IPOs), a practice detrimental to startups the government relies on to help fuel the economic revival.

The Fair Trading Commission (FTC) has targeted pricing procedures to address concerns that IPOs may be undervalued to increase the chance that stock prices will jump on trading debuts in benefit of brokerage clients but at the expense of new companies.

The warning comes as the government works to promote startups as it looks for ways to reinvigorate the world’s third-largest economy, where there are fewer than a dozen unicorns or startups with valuations greater than $1bn.

The FTC in a report said major underwriters could cause antitrust concern if they use their superior trading position to unilaterally set low IPO prices.

But the report, based on the findings of the FTC surveys and interviews with startups and brokerages, showed that the regulator had not found any specific instances of such a practice.

The Japan Securities Dealers Association, a brokerage industry group, is reviewing the pricing process in response to the problem initially raised by the new companies. read more

The group will likely make recommendations in February, Toshio Morita, chief executive officer of the industry group and former head of the main securities division of Nomura Holdings Inc (8604.T), said last week.

Recommendations could include shortening the listing process and allowing more flexibility in the pricing mechanism, Morita said.

On the Tokyo Stock Exchange’s Mothers market for startups, it’s not uncommon to see shares debut at prices much higher than IPO prices, leading some startups to question whether IPO prices are too low.

Brokers attribute the wide gaps to high volatility in the Mothers market, where share prices in untested companies with very small market capitalizations tend to swing wildly.

Category: Japan

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