Institutions warned against price manipulation | The Daily Star
12:00 AM, February 13, 2019 / LAST MODIFIED: 12:06 AM, February 13, 2019

BOOK BUILDING SYSTEM

Institutions warned against price manipulation

The stockmarket regulator yesterday warned eligible investors against resorting to manipulation for fixing higher premium in the book building system for the sake of general investors.

Eligible investors refer to investors such as stock dealers, merchant banks, asset management companies, banks, non-bank financial institutions, insurance companies, and provident funds.

“If eligible investors bid higher price that is not justified by earnings and we can prove the anomaly, then we will exclude them from the list of eligible investors,” said M Khairul Hossain, chairman of the Bangladesh Securities and Exchange Commission (BSEC).

His comments came at a seminar on the importance of the stockmarket in making long-term financing at the FARS Hotel & Resorts.

The DSE Brokers' Association (DBA) and news portal businesshour24.com jointly organised it.

Well-performed companies enter the stockmarket through the book-building method in search of premium and eligible investors fix the premium through bidding.

The premium is the additional price that a company seeks apart from its face value when it offloads shares through an initial public offering (IPO) for its assets and growth potential from investors.

In the past, the BSEC used to fix the premium but it came under fire, leading it to introduce the book building method in 2015.

“But our issue price used to sustain after the listing,” Hossain said.

Issue price refers to the price that consists of face-value and premium.

“Now, eligible investors fix the premium but the issue prices don't last after a few months of listings. Many stocks even fell below the issue price within a few months.”

Hossain said the BSEC is going to put in place a rule that would make it mandatory for eligible investors to buy shares at their bidding price, instead of the cut-off price.

The rule aims at curbing manipulation in fixing higher premium and it has already been initiated in the small-cap board, he said.

The BSEC chief stressed maintaining coordination among all regulatory bodies. Otherwise, it may impact the market badly.

He cited two examples of lack of coordination. He said the energy regulator gave a decision on Titas Gas and the telecom regulator came up with a decision on Grameenphone, both decisions impacted the earnings of the stocks badly.

“Foreign investment in the two stocks was affected because of the two sudden decisions,” he said, adding that foreign investors blame the lack of policy stability for not bringing more investment.

According to Hossain, the stockmarket needs coordination with the Bangladesh Bank and the National Board of Revenue (NBR).

The BB still has not taken measures on banks' exposure to the stockmarket even after the BSEC's recommendation, he said.

“As a result, banks and financial institutions have to sell shares when the market goes up and the market can't rally as per its potential.”

AB Mirza Azizul Islam, a former chairman of the BSEC, said all the regulatory bodies should talk to the stockmarket regulator first before they take any decision about a listed company.

A lot of well-performed companies should come to the market, but they will not come willingly, he said. “So, the government should take a comprehensive step.”

The government should announce more incentives for listed companies to pull well-performed companies to the market, said Shakil Rizvi, president of the DBA.

“The stock exchanges can withdraw listing fees for two years for newly listed companies and the BSEC can set up a fast-track system to give IPO approval to top companies.”

Faruq Ahmed Siddiqi, another former chairman of the BSEC, also spoke.

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