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Policy changes shoo away IPO hunters since 2020

BO accounts meant to exploit primary market decline 65pc

Mohammad Mufazzal | April 25, 2023 00:00:00

More than half of operable BO (beneficiary owner's) accounts had zero share balance and had been used for no share transaction in the secondary market until May 2020.

The figure has dwindled gradually over the last three years, thanks to the policy change that discouraged opportunists from maintaining BO accounts only to apply for IPO (initial public offering) shares.

The number of operable accounts was 2.58 million until the end of May 2020. About 51.55 per cent of the accounts had remained unused by the account holders in transactions in the secondary market.

The remaining 48 per cent or 1.24 million accounts had shares that could be traded, according to the Central Depository Bangladesh Limited (CDBL).

Data as of April 18, 2023 reveals that the number of unused BO accounts dropped to 0.46 million from 1.33 million in a span of three years.

To trade in the secondary market and apply for primary shares, an investor has to open a BO account with the CDBL through a depository participant (DP), which is usually a stockbroker or a merchant bank.

CDBL officials said the allocation of IPO shares on pro-rata basis had played a pivotal role behind the reduction in the number of unused BO accounts.

Raquibul Islam Chowdhury, a general manager at the CDBL, said earlier a significant number of BO accounts had been used only to apply for IPO shares.

The Bangladesh Securities and Exchange Commission (BSEC) issued a directive in January 2021, asking market operators to scrap the lottery system for IPO share allocation and introduce instead proportionate allotment of shares.

The order was put in effect on April 1, 2021.

The number of IPO applications has declined gradually since then amid the narrowed scope of winning more IPO shares by submitting higher number of applications.

Many of the IPO hunters lost interest in maintaining several BO accounts as they had to pay annual fees for accounts for no apparent gain.

The annual fee to be paid against a BO account is Tk 450. Of the amount, Tk 200 goes to the public exchequer, Tk 100 to DPs, Tk 100 to the CDBL and the remaining Tk 50 to the BSEC.

The maintenance cost also rose significantly due to a mandatory investment of Tk 20,000 in a BO account to apply for IPO shares.

An investor is required to keep the amount in his account to be eligible as an IPO applicant. The requirement has been in place since April 1, 2021, according to another BSEC order.

Moreover, the minimum value of an IPO subscription by a general investor has been reduced to Tk 10,000 from Tk 50,000.

The IPO hunters used to exit the market offloading their shares with profits within a few days after a company's debut trading. They had no contribution to the secondary market.

The securities regulator introduced the pro-rata basis share allocation to avert selling pressure created by IPO hunters.

The number of BO accounts with share balance has remained almost same during the period.

The number of accounts with share balance was 1.41 million as of April 18, 2023, 1.49 million until April 18, 2022 and 1.41 million until April 18, 2021.

The number of total operable BO accounts stood at 1.87 million as of April 18 this year. Of the accounts, 1.79 million are owned by residents while 1.85 million accounts are maintained by non-resident Bangladeshis.

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