The Dhaka Stock Exchange on Sunday proposed that the Bangladesh Securities and Exchange Commission should revise the book building method of initial public offering as the bourse has found a number of flaws in the system.
Book building is a process by which an underwriter attempts to determine at what price an IPO to be offered based on demand from institutional investors.
The country’s premier bourse came up with the suggestion during a courtesy visit the DSE board, led by its newly elected chairman Abul Hashem, paid to the stock market regulator after the recent reconstitution of the board.
BSEC chairman M Khairul Hossain presided over the meeting while its commissioners Md Helal Uddin Nizami, Md Amzad Hossain and Swapan Kumar Bala were present.
The proposal for a review came in just one year after the BSEC amended the book building method.
The commission in December 2015 amended the public issue rules amending some book building provisions including scrapping of indicative price discovery system before bidding.
The book building method of IPO had remained suspended for four years after the market crash in 2010 amid a widespread allegation of misuse of the process during the market bubble.
The process was reintroduced in 2014 by allowing United Power Generation and Distribution Company to raise fund under the method.
DSE sources said that the bourse proposed a review of the method as questions were raised over the discovery of cut-off price of the latest IPO-seeking company, Aamra Networks, under the method.
A number of entities have already informed the DSE about flaws in the method, prompting the bourse to raise the issue at its Sunday’s meeting with the commission, they said.
Under the method, only 10 entities may engineer a cut-off price during the bidding process as a single entity can bid for 10 per cent of an IPO-size, they said.
For example, if any 10 organisation bid for the full IPO volume kept for the bidding at Tk 60 a share, the cut-off price will be Tk 60 a share, they said.
It that case, there is a scope for fabricating the cut-off price with just 10 bids, they said.
Based on the findings, the DSE on Sunday proposed that under the book building method at least 50 bids should be considered for determining the cut-off price, a DSE director told New Age.
At the same time, the commission should not allow any bidder to bid for more than 2 per cent of an entity’s IPO amount with a view to ensuring more transparency in the process, he said.
He also said that the commission was also aware about the issue and might take steps to amend the method.
Asked, DSE managing director KAM Majedur Rahman admitted that the bourse informed the BSEC about the issue along with other capital market-related issues.
DSE directors Siddiqur Rahman Miah, Waliul Islam, Monowara Hakim Ali, M Kaykobad, Abul Mansur Md Ashraf Khan, Md Masudur Rahman, Md Rakibur Rahman, Md Shakil Rizvi, Mohammad Shahjahan and Khwaja Ghulam Rasul were also present in the meeting.
The bourse at Sunday’s meeting also raised a number of issues including DSE’s full ownership in the proposed clearing corporation that is likely to be formed within this year, increasing daily trading duration, formation of separate central deposit system and extension of tax holiday for the demutualised bourse, said a DSE press release issued on the day.
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