In response to stakeholders' recommendations, the securities regulator now plans on abolishing lotteries to allocate primary shares in oversubscribed initial public offerings (IPO).
The Bangladesh Securities and Exchange Commission (BSEC) has formed a committee to recommend the ways forward in this regard alongside preparing a roadmap to reduce time in the IPO process.
In a meeting presided by BSEC Commissioner Dr Shaikh Shamsuddin Ahmed, with representatives of two stock exchanges and the depository service provider, the regulator formed the seven member-committee that would be headed by BSEC Director Md Monsur Rahman and include two representatives from the Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and Central Depository Bangladesh Limited (CDBL).
The committee would submit its report within a very short time like one or two weeks, according to BSEC Executive Director (current charge) and Spokesperson Mohammad Rezaul Karim.
Stakeholders, in recent meetings with the regulator, have requested for a pro-rata basis in allocation of IPO shares among general investors instead of lotteries.
Currently, eligible institutional investors receive primary shares on a pro-rata basis, which means every applicant is entitled to buy primary shares in proportion to how many they had applied for.
The ratio of demand and allocation depends on the level of oversubscription in an IPO.
However, to introduce pro-rata for general investors the stock exchanges will need to accommodate it in their electronic subscription system and the committee will recommend any changes there, if needed.
Another point the committee will recommend on – how much secondary market investment would be a must for an investor to apply for primary shares.
A group of IPO hunters have long been blamed for making the primary market unhealthy in Bangladesh.
Alongside all the ins and outs of general investors' IPO application, the committee will recommend how the regulator and related entities together can reduce the time of IPO approval.