The securities regulator is set to redefine the categories of eligible investors (EIs) to check the abuse of IPO (initial public offering) quota system.
To this end, the Bangladesh Securities and Exchange Commission (BSEC) has now been working to amend the BSEC (Public Issue) Rules, 2015, which deals with EI issues, among others.
Recent years saw an exponential growth of registered pension fund, provident fund and gratuity fund and most of these entities have been participating in the IPOs to take advantage of the quota facility, officials familiar with the matter told the FE.
Besides, many stock dealers are also abusing their licences, as they only participate in the IPOs but do not make other market investment, they said.
Currently, a committee of the BSEC has been working on this issue and it will submit its reports shortly, they added.
"We've noted that the number of registered provident and pension funds is mushrooming in recent times," said an insider.
The regulator may bar such entities from participating in the IPOs, he added.
BSEC Chairman Dr M Khairul Hossain has also raised the issue on many occasions.
According to Public Issue Rules, 2015, eligible investor means the institution who has business operation or investment in Bangladesh and is registered with the electronic subscription system of the stock exchanges.
The EIs are merchant bankers and portfolio managers, asset management companies, mutual funds and collective investment scheme (CIS), stock dealers, banks, financial institutions, insurance companies, alternative investment fund managers, alternative investment funds, foreign investors having account with any securities custodian registered with the Commission, recognised provident funds, approved pension funds and approved gratuity funds, and other institutions as approved by the Commission.
Under the fixed-price method of IPO, some 40 per cent of the total public offering shall be reserved for EIs, excluding Mutual Fund and the CIS; while some 10 per cent for the MF and CIS, 40 per cent for general public and the remaining 10 per cent for the NRBs (non-resident Bangladeshis), according to the rules.
And under the book building method, some 50 per cent of total public offering shall be reserved for EIs, excluding Mutual Fund and the CIS; while some 10 per cent for the MF and the CIS, 30 per cent for general public and the remaining 10 per cent for the NRBs.
A source at the Dhaka Stock Exchange (DSE) told the FE that they found a section of the EIs engaged in other types of wrongdoing. A board member of an EI was found involved in unethical practice of participating in the IPOs bypassing its board, he added.
The DSE came to know about the matter when the board of the EI had applied for enlistment with the bourse, a requirement needed to participate in the IPOs.
Later, the DSE handed over the case to the BSEC for taking action.
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