SEC chairman Faruq Ahmad Siddiqi Thursday said an amendment will be brought to merchant bank rules making it mandatory for the merchant bankers to bring new issues in the market.
"If they fail to bring new issues they will face cancellation of licence," the SEC chief made the comment while inaugurating a five-day certification course on Financial Derivatives jointly organised by Chittagong Stock Exchange (CSE) and National Stock Exchange (NSE) of India in the city on the day.
About the present market situation, Siddiqui said, "The market is overpriced, none will disagree with me."
"To cool down the overheated market, new issues need to be inducted into the market. But SEC cannot alone play the role. The stock exchanges and merchant banks will have to come forward to overcome the crisis presently faced by the market," he said.
When contacted an SEC source said the amendment in merchant bank rules is in the final stage. But before finalisation, the Securities and Exchange Commission (SEC) will sit with the merchant bankers in order to give proper shape into the rules.
The SEC chief also said, "The move was taken as the merchant bankers prefer to invest in the secondary market rather than bringing in new issues after receiving their licence."
Earlier, the commission warned the merchant bankers that action will be taken if they fail to market at least one new issue in a year. Currently, 30 merchant banks are operating in the bourses.
Applauding the move economist Abu Ahmed said, "It is a good move as it will keep the merchant bankers on the run to find new issuers."
"At present they just are managing their portfolio. This step will also ultimately help strengthen the stock market that needs securities," he added.
A capital market analyst, however, sees the move as both positive and negative way.
Yawer Sayeed, the capital market analyst, said "The move has both merits and demerits."
Before brining amendment to the merchant bank rules, the commission needs to create an enabling environment so that entrepreneurs are encouraged to come into the capital market, he added.
"Fair IPO pricing, policy and institutional support are the prerequisite to attract the entrepreneurs towards the securities market," Sayeed said adding scientific pricing mechanism like book building method needs to introduce for setting fair IPO pricing for the entrepreneurs.
Ruling out the logic that current pricing system is discouraging the private sector to come into the stock markets, SEC chairman said, "It is a general complaint that private sector is not joining the market as they are not getting fair price for new issues."
"But this is not true as there are instances that SEC allowed premium of Tk 1100 for an IPO. If the premium is justified SEC is always ready to give for setting the fair IPO prices," he added.
On introduction of book building system, he said introduction of building system is now under consideration. "It needs more study," he said.
