SEC bars large-scale distribution of pvt placement shares at Dhaka Stock Market

The securities regulator has imposed restriction on mass-scale distribution of private placement shares in a desperate move to restore discipline in the country's stock market, officials said.

At the same time, the Securities and Exchange Commission (SEC) has imposed lock-in on the sale of allotment letters of private placement shares to contain the competition to raise the prices of such shares through transfer.

The SEC has incorporated these two major provisions into its approved guideline on private placement shares, which is likely to be formally disclosed today (Thursday).

"We have imposed restriction on the largescale transfer of private placement shares for the sake of market discipline," a top SEC official told the FE.

The official said placement shares have been sold to thousands of people, even to grocers and drug sellers. "As a result, an informal market has been formed outside the main stock market," the official said.

Meanwhile, sources said a kerb market of placement shares was set up in the office of a business group in the city's Banoshri area, where placement shares worth about Tk 10 billion were transacted over a period of one year.

Country's prominent figures including members of parliament (MPs), top government officials, top executives of different brokerage firms and even cultural personalities, made investment in placement shares.

The SEC official said in India, the placement shares of a company cannot be distributed among more than 49 persons. "The sponsors can raise their company's capital distributing placement shares among some more people if they feel such a necessity, which will face no regulatory bar," the official added.

He said, the regulator has imposed lock-in on the allotment letters of placement shares so that such shares cannot change hands.

Earlier, placement shares used to change hands frequently as there was no restriction on this mechanism.

The SEC official expressed his optimism that the ill-competition of distributing placement shares would be reduced and the kerb market would disappear as well.

The SEC official said a section of people want the discontinuation of the "placement shares" distribution system.

"But we do not think so, as I cannot cut off my head to get rid of a headache. I must have to concentrate on the healing of my headache," he said.

He said the regulator has formulated the guideline on placement shares where only big investors would be able to make investment.

"As a result, the rich investors will have to bear the possible risks in purchasing such shares and general people will not be affected anyway by such transactions ," the SEC official said.

Citing the example of the United States of America, the official said in that country one cannot purchase placement shares if his or her net income is below one million dollar a year.

Meanwhile, the market experts have welcomed the regulatory move to bring in discipline in the market for the sake of investors and market as well.

"I am very much pleased at the regulatory move. Because, no system can run without maintaining a minimum standard," Reaz Islam, a fund manager, told the FE. Islam said recently, a large amount of money, an estimated Tk 40-70 billion, has been invested in placement shares.

"This money somehow has gone out of the market and triggered the liquidity crisis. That's a sick competition of distributing placement shares which should be controlled by strict regulations," Islam added.