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BSEC puts 50% price cap on first two days of debutant stocks

  • Published at 10:43 pm November 5th, 2019
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The decision was made in the Bangladesh Securities and Exchange Commission meeting, presided over by Commission Chairman M Khairul Hossain

The securities regulator on Tuesday decided to put 50% circuit breaker or price cap on share prices of newly listed companies for the opening three days in the stock market to prevent their abnormal price rise or fall.

The decision was made in the Bangladesh Securities and Exchange Commission meeting, presided over by Commission Chairman M Khairul Hossain.

The opening day of any share will have a circuit breaker of 50%, applicable equally on rise or decline on its issue price and on the second day of the trading, the cap will be imposed on the adjusted opening price of the traded shares, says a BSEC statement issued on the same day.

From the third day, the regular 10% circuit breaker will be in place, similar to other listed firms.

“It has been noticed that non-resident Bangladeshis and lottery winners of initial public offerings sell out their shares at higher prices during the first two to three days, and leave the market. The trend affects the general investors and negatively impacts the index of the market,” says the BSEC statement.

"In line with the recent Dhaka Stock Exchange Proposal, the commission made the decision on circuit breaker. A directive in this regard will be issued soon,” it adds.

Stakeholders of share market including representatives DSE and Dhaka Stock Exchange Brokers' Association (DBA) in a recent meeting with the BSEC demanded a number of reforms to ensure quality IPOs in the stock market.

The premier bourse last week formed a six-member committee to review the prospectus of IPO-seeking companies before their listing with bourses.

During the eight-year tenure of incumbent BSEC Chairman M Khairul Hossain, around  86 IPOs were approved, while around half of them were alleged to be of low qualities.

Market insiders alleged that a large number of low performing firms often showed higher profitability in their financial statements while applying for IPO approvals.

After listing, it was found that the earning per share (EPS) of most of the firms started falling, suggesting that their earlier earning reports were either overestimated, or fake, they said.

They also said in the opening day of trading some companies’ prices shot as high as 200%-400%.

The meeting also decided to allow stock dealers to provision their losses while investing in mutual funds.

For closed -end mutual funds, the commission decided to allow 85% loss provisioning after deducting the net current market price of the fund from the average unit buying price, says the statement.

For open -ended mutual funds, 5% provisioning has been  approved after deducting the buyback unit price from the average buying price of the fund.

Asked about the issue, DBA president Shakeel Rizvi welcomed the securities regulator’s decision.

“The cap on first few days on share price is a good initiative and should have been taken long ago. Cashing in the abnormal price hike of IPOs in opening days, a vested quarter take advantage leaving other general investors to suffer,” he told Dhaka Tribune on Tuesday.

He also said the move to allow stock dealers loss provisioning in mutual fund would create a level playing field as currently only merchant banks enjoy the facility.  

Besides, the meeting extended the deadline to December 31 to update the multiple BO account information of same client such as bank account number, mobile phone number and national ID card number.

The commission also decided to impose a 3-year lock in period on Ring Shine Textile Limited’s shares, held by Universe Knitting Garments as the chairman and managing director of both the companies are the same person, Sung Wey Min.