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Securities regulator has decided to look into the alleged irregularities indulged in by the eligible investors (EIs) in determining companies' share prices under the book building method (BBM).
Bangladesh Securities and Exchange Commission (BSEC) has already started collecting information on the role of the EIs while determining the cut-off price of a company's shares under the method, said officials.
The securities regulator said it will revise the IPO quota, scrapping those of the EIs, who are responsible for determining unjustified share prices under the BBM.
The regulatory moves came following criticism over fixing share prices of some companies by the EIs unjustifiably.
The BSEC wants to ensure due role of the EIs by curbing malpractices for the sake of investors and for a stable capital market, the officials also said.
"The securities regulator is collecting information regarding role of the EIs in determining the cut-off prices," BSEC chairman Professor M. Khairul Hossain told the FE.
He said the IPO quota of an EI will be scrapped, if its involvement is found in determining unjustified cut-off prices.
"After a certain period, the IPO quota of the EIs will be revised after examining their role for the sake of investors and the market."
The BSEC chairman also said both the investors and the stock market get affected, if a company goes public with unjustified share price.
Under the BBM, the EIs, including banks, financial institutions, and asset management companies, enjoy 60 per cent quota facility.
The remaining 40 per cent quota is kept for general investors, including non-resident Bangladeshis (NRBs).
Under the method, the EIs purchase a company's shares at cut-off price. The general investors get shares at 10 per cent discount rate on cut-off price.
On November 12, the BSEC chairman at a workshop said the regulator introduced the BBM, so that the issuers get fair price.
"But the regulator becomes helpless when the EIs quote (unjustified) IPO prices by forming a nexus."
In October, the BSEC chairman warned the EIs of 'scrapping' their IPO quota, if they fail to perform their due role.
He said the IPO quota of stockbrokers will be scrapped, if they use fund from consolidated customers' account for their (brokers') own investment.
Prof. Khairul Hossain also warned them of scrapping quota, if there is no transaction in dealers' account.
The securities regulator often imposes penalties on stock brokers for using the fund from consolidated customers' account.
According to the BSEC chairman, a merchant bank, which is also the issue manager, will not be entitled to the quota facility, if it fails to bring two IPOs in one year.
"The licence of an asset manager will also be cancelled, if it does not carry out due role as per the securities rules," he added.
Under the fixed price method, the EIs are entitled to 50 per cent IPO quota, while remaining 50 per cent quota is kept for the general investors, including NRBs.