New IPO rules take price discovery to global standards: BSEC chief

New IPO rules have created scope for professional and globally accepted price discovery mechanisms, said the chief of the securities regulator.

The remark was made at a meeting on Wednesday between the Bangladesh Securities and Exchange Commission (BSEC) and the Central Depository Bangladesh Limited (CDBL), organised to discuss capital market automation, structural modernisation and overall market development.

BSEC Chairman Khondoker Rashed Maqsood headed the meeting, with CDBL Chairman Tapan Chowdhury present.

The securities regulator has recently issued a gazette on the revised public issue rules.

The revised public issue rules introduced a new component-future profitability-to determine the value of primary shares, aiming to encourage companies with strong growth prospects to enter the equity market.

According to the revised rules, issue managers, in consultation with issuers, shall determine the indicative prices based on valuations received from eligible investors, derived from their demand during roadshows.

Indicative prices must be supported by valuation opinions from at least 40 eligible investors (EIs), including at least 10 from each of the three categories-portfolio managers, stock dealers and asset managers.

Indicative prices must be justified through four globally acceptable valuation methods designed to incorporate future earnings into the price determination process. For example, under the dividend discount model (DDM), a company is worth the sum of the present value of all its future dividends, whereas the discounted cash flow model (DCF) states that a company is worth the sum of its discounted future free cash flows (FCFs).

At the meeting, the BSEC chairman said the capital market must attract and list fundamentally strong and well-performing companies.

During Wednesday's meeting, the two sides discussed at length capital market automation, structural reforms, development of the Know Your Customer (KYC) system, upgrading market surveillance mechanisms, ensuring institutional governance and other related issues.

Highlighting CDBL's critical role in the capital market, the BSEC chairman said at the meeting that the commission expects CDBL to take a leadership role in KYC system development, modernisation of surveillance and overall market development.

He also emphasised the importance of CDBL's active participation in planning and implementing capital market development initiatives.

Mr Maqsood further mentioned that the commission is considering assigning new responsibilities to CDBL, including a custodian-like role, to support the development of the mutual fund sector.

CDBL Chairman Tapan Chowdhury said companies should increasingly turn to the capital market for long-term financing. He assured that CDBL would extend all necessary support to the capital market.

Among others, BSEC commissioners Md Mohsin Chowdhury, Md Ali Akbar, Farzana Lalarukh and Md Saifuddin were present at the meeting. Also attending were CDBL Managing Director Md Abdul Motaleb, Chief Financial Officer and Company Secretary Mohammad Shahidul Islam, along with BSEC executive directors, directors and other officials.