To put an end to market manipulation, the regulator has finalised its rules, allowing general investors to buy 70% shares of any initial public offerings (IPOs), up from the previous 50% and 60% in two separate categories.
As a result, general investors' IPO quota will increase by 10% in fixed price and 20% in book building methods.
Consequently, institutional investors' quota in primary shares will come down by 10% and 20% in fixed price and book building processes respectively.
Sources said the Bangladesh Securities and Exchange Commission (BSEC) has finalised the rules last week.
Of the 70% shares set aside for general investors, the regulator fixed 65% for resident Bangladeshis and only 5% for non-resident Bangladeshis.
In other words, institutional investors will get 20% IPO shares in fixed price and 30% in the book building systems.
Mutual funds will get only 10% primary shares in the fixed price method while they will be treated as institutional investors in the book building system.
Sources at the BSEC said that there are many institutional investors who do not participate in the secondary market.
Besides, there are a number of institutions that exist on paper only to also get shares in the primary market.
From 1 April 2021, every general investor applying for primary shares will get stocks, so it has been necessary to increase the IPO quota for general investors, added the sources.
BSEC Commissioner Shaikh Shamsuddin Ahmed said, "We are trying to make some changes to the IPO rules in the interest of general investors and the betterment of the market.
"We have taken this decision to increase the number of participants because general investors are the owners of around 85% shares in the market."
Shaikh Shamsuddin Ahmed further said, "If we bring down the quota, then the manipulation will be reduced gradually in the primary market. We have a plan to phase out the quota system, but we need time to do so."
Professor Abu Ahmed, a capital market analyst, has termed the decision positive.
"It could be the best if the regulator would have abolished the quota system from the capital market.
"Some institutions take advantage of the quota system and the regulator's decision will reduce manipulation in the primary market."