Market task force suggests removing prior investment requirement for IPO shares
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The task force of the capital market has recommended omission of the minimum prior equity investment requirement for investors to apply for IPO shares.
The suggestion given in a report submitted to the Bangladesh Securities and Exchange Commission (BSEC) on Monday is aimed at encouraging participation of new investors in the equity market.
A provision of mandatory equity investment of at least Tk 50,000 has been in place since June 2022 for investors seeking primary shares of a company. The minimum investment had been set at Tk 20,000 in December 2020 by the commission led by Prof Shibli Rubayat Ul Islam following demands from brokerage firms.
The argument at the time was that many investors opened and maintained BO (beneficiary owner's) accounts just to get IPO shares; they did not invest in the secondary market. These investors have a tendency to start offloading shares on the debut trading, creating a selling pressure on the trading floor.
In its proposal, the task force said primary and secondary markets are different and the provision of a minimum equity investment prior to applying for IPO shares is a barrier to the entry of new investors in the market.
"This is not practised in any other market in the world. This prerequisite can be omitted," said the task force.
In support of the suggestion, Minhaz Mannan Emon, a director of the Dhaka bourse, said the imposition of the bar on new investors was irrational.
In the report, the task force also recommended changes in the allocations of IPO shares among investors.
Presently, eligible investors (EIs), including mutual funds (MFs) and cumulative investment schemes (CIS), are allowed to get 25 per cent of a public offering while non-resident Bangladeshis (NRBs) and other general investors get 5 per cent and 70 per cent shares respectively.
In its proposal, the task force said eligible investors, including MFs and CISs, may get 50 per shares of an IPO while general investors may get the remaining 50 per cent shares. Of the general investors, NRBs may be allocated 5 per cent shares, high net-worth individuals 15 per cent and retail investors 30 per cent, it added.
NRBs will invest in IPO shares through NITAs (Non-Resident Investors Taka Account), opened with an authorized dealer only. If the allocated shares for NRBs are undersubscribed, the remaining shares will be allocated to general investors.
The task force has made its recommendations following the practices in the neighbouring countries, including India. It also suggested introducing cross-border IPO subscription both for equity and bonds and other financial instruments. That would force issuer companies into maintaining good governance as they will have to comply with the securities laws of the foreign lands.
Presently, the BSEC charges an issuer 0.40 per cent of a public offer for its approval.
The task force has proposed reducing the commission to 0.10 per cent of public issues, arguing that there is no fee in Sri Lanka while the consent fee is 0.1 per cent in India.
It also urged the regulator to introduce separate regulations to facilitate fund raising by startups and tech-based companies.
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