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Circuit limits for listed securities from debut day

FE REPORT | Published: November 06, 2019 10:30:06 | Updated: November 11, 2019 11:38:22


The securities regulator has decided to apply circuit breaker system for the newly listed companies on their stock market debut to rein in unusual hike in share prices.

As per the decision taken at its meeting on Tuesday, the Bangladesh Securities and Exchange Commission (BSEC) will now impose circuit limits on the trading of new securities in their first two sessions as well.

Circuit breaker is a financial regulatory instrument used to prevent stock prices from crossing the upper circuit point or lower circuit point on a particular trading day.

Upper circuit is the limit above which a stock price cannot trade. On the other hand, the lower circuit is the limit below which a stock price cannot trade.

As per the existing system, no upper or lower circuits are applied for newly listed companies in their first two trading sessions.

As a result, shares in many listed companies have witnessed a steep price hike as high as 550 per cent on their debut trading.

Taking this advantage, many investors who hold IPO (initial public offering) shares sell their shares at a high rate on the first trading day, said a BSEC official.

"But afterwards, the companies' shares fail to sustain their high price levels, leaving negative impacts on index and general investors as well. And the market loses its momentum," he explained.

Under this circumstance, the BSEC has decided to put circuit breakers in place from the debut trading day of all securities, he added.

As per the BSEC decision, the upper circuit will allow the price hike of shares up to 50 per cent of the issue price on their debut trading day.

Also on the second day, the share prices can jump up to 50 per cent of the previous day's closing price or open adjusted price.

From the third trading session of the newly listed companies, the existing circuit limits will be applicable.

At Tuesday's meeting, the securities regulator also imposed a three-year lock-in period, instead of the usual practice of one-year period, on the placement shares in Ring Shine Textiles held by Universe Knitting Garments.

Sung Wey Min, the managing director of Ring Shine Textiles, is also the chairman of Universe Knitting Garments.

On July 29, 2019, the BSEC approved the IPO proposal of Ring Shine Textiles.

Following the BSEC's approval, the DSE said Sung Wey Min's position in two companies has created a conflict of interest.

The company, which has raised a fund worth Tk 1.50 billion under the fixed-price method, has now been waiting for debut trading.

At the meeting, the securities regulator also allowed the stockbrokers to keep provision like the financial institutions against the losses stemming from investments in mutual funds.

mufazzal.fe@gmail.com

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