SEC plans wider scope for small investors in book building system

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The Securities and Exchange Commission (SEC) is set to ensure enough room for general investors to take part in initial public offerings (IPOs) under its planned book building system, reports bdnews24.com.
"We have recommended keeping the option open to small investors. But it needs a discussion to fix how many small and institutional investors will be allowed to participate under the book building system," Mansur Alam, member of the SEC, said after the 25th meeting of its consultative committee, Tuesday.
The SEC's latest move has come amid concerns among small investors who appear to find themselves out of the book building system, a method of discovering market-based prices of issues interested to go public.
The commission last year planned to introduce the system to attract good local and multinational companies which, instead of fixed pricing IPO system, want competitive prices for their shares.
"We hope big multinational companies will go public after the SEC approves the proposed book building rule," Alam said.
A technical committee, comprising chiefs of the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) and a SEC director, earlier submitted a draft rule on the issue.
"We will try to ensure enough spaces for the general investors," said Salahuddin Ahmed Khan, chief executive of the DSE.
The meeting agreed that companies having good profitability history, at least a BBB credit rating, would be eligible to exploit the facility.
Alam said that interested companies would also have to submit their financial statements audited by firms that have international affiliation.
The meeting also discussed a draft proposal on Margin Rule or loan extending criteria for merchant banks that now extend loans to clients according to their wishes.
Alam, referring to the risk exposures in providing 100 per cent loans for investment in a particular security, said that none of the merchant banks would be allowed to do that.
"They (merchant banks) will be allowed to provide 50 per cent of the total loans, at the best, for investment in a particular issue," he said.
Alam said merchant banks would be required to provide loans to those securities that had good fundamentals, lower risks and no wider variations in their prices.
The committee proposed two separate loan extension ratios for the merchant banks, 1:1.5 or 1:2.
Alam said the recommendations of the meeting would be placed at the SEC meeting for approval. "We hope to frame both the rules in three months," he said.