BSEC mulls further reform of book-building method

Dhaka,  Thu,  21 September 2017
Published : 21 Apr 2017, 00:43:19

BSEC mulls further reform of book-building method

Mohammad Mufazzal

The securities' regulator has moved to bring further changes to the book-building method in an effort to make the public rules more time- befitting.

The regulatory move came following demand of stakeholders, including stock exchanges, which are in favour of changing some clauses of rules to avert any doctoring during determination of  cut-off prices of stocks.

BSEC mulls further reform of book-building methodAmong the stakeholders, the Dhaka Stock Exchange (DSE) already submitted a formal proposal to revise the book-building method to the Bangladesh Securities and Exchange Commission (BSEC).

Book-Building Method, also known as International Price Discovery Method, is a process by which an underwriter attempts to determine what price to offer an initial public offering (IPO) based on demand from institutional investors.

A top official of the securities' regulator Wednesday said the regulator is giving importance to further modification of book- building method.

"The amendment that we brought to book- building method was able to contain many irregularities which earlier triggered criticisms in the market," the BSEC official said.

He said the regulator has discussed some issues of book-building method and is working in this regard.

"We hope the book-building method will be more time-befitting along with finalising the Securities and Exchange Commission (Central Counter Party) Rules, 2017," the BSEC official added.

The premier bourse DSE recently submitted a set of proposals, including modification of the process of cut-off price determination, to the securities regulator.

Four years after the suspension of the method in 2010, the securities' regulator brought amendment to the book-building method in December 2015 by increasing the number of disclosures and due diligence requirements for issuing companies and issue managers.

According to the revised book-building method, the cut-off price will be determined at the nearest integer of the lowest bid price at which the total securities offered to eligible investors would be exhausted.

In its proposal, the DSE said the cut-off price should be the weighted average bid price of at least total top (based on bid price) 50 bidders or two-thirds of total bidders participating in the bidding of a particular issue, whichever is lower.

The DSE thinks that only 10 eligible investors (Eis) have a scope of determining the cut-off price, as one eligible investor is allowed to quote  up to 10 per cent of the total amount offered to the EIs.

The DSE also proposed a reduction in the existing 10 per cent securities allowed for an EI to bid for an issue.

Some merchant bankers said the scope of revising price even after the bidding is a weakness of the book-building method.

In the revised book-building method, the securities' regulator also restricted the distribution of private-placement shares on a large scale, which was seen as one of the major reasons for the 2010-11 stock-market debacle.
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