Manipulation of primary shares in the capital market will reduce if free-float shares are available on the first trading day of a company, Md Sayadur Rahman, president of Bangladesh Merchant Bankers Association (BMBA), has proposed.
At a seminar organised by Bangladesh Securities and Exchange Commission (BSEC) on Monday, he said 70% of shares of a new company should remain free on the first trading day.
If that is possible, manipulation of primary shares will come down, he said.
He referred to some companies that saw their share prices go up unusually high due to buyers' demand. But after a few working days, prices came down and investors incurred huge losses.
Sayadur said no one can do manipulation if free-float shares are available.
"Merchant bankers are not really responsible for price fluctuations of listed companies' shares."
He said there is no need to take permission in raising capital of non-listed companies as per the existing rules, which is encouraging non-compliance among firms.
"As a result, issue managers face numerous problems at the time of issue management. On the other hand, it has also reduced merchant bankers' activities."
He proposed that the regulatory commission go back to its previous law.
BSEC Commissioner Dr Shaikh Shamsuddin Ahmed said market intermediaries have to be more responsible for creating confidence among general investors.
As the keynote speaker, BSEC Executive Director Mohammad Rezaul Karim said the issue manager, without depending on the auditor, would verify the accuracy of the financial statement along with relevant documents of the issuer company.
The commission published a draft amendment to the Public Issue Rules 2015 recently for public opinion.
The issuer company will obtain post-facto consent from the commission for its existing paid-up capital under the Securities and Exchange Commission (issue of capital) Rules 2001 before submitting the application for the initial public offering (IPO).
The issuer company will not apply for IPO if it raised paid-up capital, except for the issuance of bonus shares, within the preceding two years of the date of such application.
But the issuance of shares in exchange for valid consideration for other forms of collaborative investments is allowed within the stipulated time, subject to prior approval of the commission.
As per the draft rules, the issuer company may offer private placement up to 15% of the size of its IPO, which will be treated as a part of the said IPO.
The regulator will determine three slabs for off-loading shares. A minimum of 10% shares will have to be off-loaded through an IPO.
According to the draft rules, general investors will buy 70% of shares of any IPO, up from the previous 50% and 60% in two separate categories. As a result, general investors' IPO quota will increase by 10% in the fixed price and 20% in book building method.
In other words, institutional investors will get 20% IPO shares in the fixed price and 30% in the book building system.