The securities regulator has scrapped the licence of Cosmopolitan Finance as the merchant bank failed to bring a single IPO since its inception in 2010.
The sister concern of the country's largest independent power producer Summit Group also did not meet the obligation of opening at least five new portfolio accounts a year between 2013 and 2021.
Meanwhile, more than two weeks after the Bangladesh Securities and Exchange Commission (BSEC) had cancelled the licence, Cosmopolitan Finance appealed to the regulator to reconsider the decision.
BSEC Executive Director Mohammed Jahangir Alam confirmed that the regulator received the application on Thursday.
Muhammed Aziz Khan, the founder chairman of Summit Group, is also the chairman of Cosmopolitan Finance.
Cosmopolitan Finance obtained its licence from the regulator in September 2010 to carry out all merchant banking operations under the BSEC (Merchant Banker and Portfolio Manager) regulations 1996.
Responsibilities of a fully-fledged merchant bank include underwriting, issue management and portfolio management in the stock market.
As per the conditions attached to the licence, a merchant bank in a calendar year has to form at least 5 portfolios in addition to its own portfolio and be underwriter for at least two public issues or manage at least one public issue.
Mohammad Rezaul Karim, spokesperson of the BSEC, told The FE that the regulator had given the merchant bank time to explain its position.
"The regulator did not find the explanation satisfactory, so it cancelled the licence. But there is provision for a review."
Sharif Mahmudul Hasan, acting managing director of Cosmopolitan Finance, did not respond to queries about the issue of non-compliance.
With Cosmopolitan Finance, seven merchant banks have so far lost regulatory permission to do business in actions against entities that could not help the market expand.
During the period of 2012-2022, a total of 115 companies went public raising capital through IPOs. Of those, 32 IPOs were managed by only three merchant banks.
The remaining 43 merchant banks managed 83 IPOs while 20 merchant banks had no role in bringing IPOs.
Witnessing the scanty number of IPOs, the regulator decided to take a tough stance against the inactive issue managers.
Oversaturated market
At present, there are 66 merchant banks. Of them, 64 are fully-fledged merchant banks and two others -- Imperial Capital and Alliance Financial Services -- have permission to operate only as issue manager.
Currently, Hal Capital Limited is deemed as inactive, said Mr Alam, of the BSEC. Other than that there are many partially compliant merchant banks.
"The market does not have room for so many merchant banks," said Mohammad A Hafiz, former president of the Bangladesh Merchant Bankers Association (BMBA).
"On an average 14 to 16 IPOs are floated a year in the country. How will more than 60 merchant banks work here? The competition is very high."
The listing of weak companies, which according to Mr Hafiz was facilitated by corrupt auditors, also created hindrance to the successful functioning and growth of the industry.
Moreover, there are many merchant banks lacking the capacity to manage IPOs and conduct the marketing to bring in good companies.
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