New IPO subscription system gets green light

Investors will be able to apply for primary shares through stockbrokers and merchant banks instead of commercial banks from April under a new IPO subscription system.

The new system, which has been approved by the Bangladesh Securities and Exchange Commission yesterday at a meeting, will cut down the processing time to less than one month from the existing two months and above.

As per the new subscription mechanism, to participate in an initial public offering an investor will have to give instruction in a prescribed paper or electronic form to the stockbrokers or merchant banks with whom a beneficiary owner’s account is maintained.

The applicant’s instruction should come within 25 working days from the publication date of IPO prospectus.

The form should contain the customer ID, name, BO account number, number of securities applied for, total amount and category of the applicant.

Money will have to be available in the customer’s account; no margin facility, advance or deferred payment will be allowed for IPO subscription.

After verifying the availability of the fund, the stockbroker or the merchant bank will block the amount equivalent to the application money and accumulate all the applications or instructions received up to the subscription closing date.

The stockbroker or the merchant bank will have to maintain a separate bank account namely “Public Issue Application Account” for the IPO purpose, where the blocked amount will be deposited.

In case of applications submitted by the stock dealer or the merchant bank’s own portfolio, the application amount should also be transferred to this account.

After blocking the accounts, the banks will issue a confirmation certificate to the stockbrokers and merchant banks.

The stockbrokers and merchant banks will send the IPO applications within three working days from the subscription closing date to the stock exchanges, both in electronic and print format, along with the certificate issued by the banks.

After verification, the stock exchanges will provide all the information to the issuer the next day, who will then prepare a consolidated list of the IPO applications and forward them to the Central Depository of Bangladesh Ltd (CDBL) for verification.

Along with a verification report, the CDBL will provide the issuer with an updated database of the IPO applicants containing the BO account number, name, address, parents’ name, joint account information and bank account information.

After receiving the verification report and information from the CDBL, the issuer will scrutinise the applications, prepare category-wise consolidated lists of the valid and invalid applications, and submit status reports of subscription to the commission and the stock exchanges.

Within two working days of the lottery, the issuer will send the lists of the successful and unsuccessful applicants in electronic and printed formats to the stockbrokers and merchant banks, requesting them to unblock the amount blocked earlier and remit the amount of successful applicants to the issuer’s respective “escrow account” opened for subscription purpose.

The issuer will issue allotment letters in the name of successful applicants in electronic format with digital signatures and send those to respective stockbrokers and merchant banks.

On the next working day, the banks will release the blocked amount and remit the aggregate amount of successful applicants, deducting a service charge to the issuer’s “escrow account”.

Simultaneously, the stockbrokers and merchant banks will unblock the customer accounts, informing the successful applicants about allotment of securities and the unsuccessful ones about the release of their blocked amounts.

The stockbrokers and merchant banks will get a service charge of Tk 5 per application from the applicants.

To credit the allotted shares to the respective BO accounts, the issuer will also send consolidated allotment data in text format to the CDBL.

Also at yesterday’s meeting, the regulator fined two stockbrokers and a non-listed firm for breaching securities rules.

United Financial Trading Company was fined Tk 5 lakh, South Asia Securities Tk 1 lakh and AA Rashayan Shilpa Ltd, the non-listed firm, Tk 2 lakh.