Retail investors have demanded a 20-30% discount on shares offered through initial public offerings (IPOs) under the book-building method, seeking the restoration of the previous pricing benefit.

The demand comes as the Bangladesh Securities and Exchange Commission (BSEC) has excluded the discount facility from its proposed amendments to the Public Offer of Equity Securities Rules, 2025. Under the draft rules, retail investors would have to purchase shares at the same cut-off price determined through bidding by eligible institutional investors.

Around 15 to 16 investors submitted a written application to the commission on Monday, urging it to reconsider the proposed changes.

Investors said they previously had the opportunity to purchase shares at prices below the cut-off price determined through institutional bidding. Removing this benefit would increase their investment risks, as they would have to buy shares at the same price offered to institutional investors.

Under the proposed amendments, eligible institutional investors would receive shares at their respective bid prices, subject to a minimum price equal to the cut-off price. Retail investors, meanwhile, would have to purchase shares at the cut-off price, eliminating the price difference between the two categories.

Under the Public Issue Rules, 2015, retail investors were entitled to purchase shares at a 10% discount to the cut-off price under the book-building method. In special cases, the BSEC increased the discount to 20-25%. However, the 2025 rules removed the facility, requiring all categories of investors to purchase shares at the same price.

Investor Mohammad Shahjahan said retail investors previously received shares at prices 20-30% below the cut-off price, but the proposed rules would eliminate that advantage.

Another investor, Mohammad Abu Sayem, questioned why retail investors should pay the same price determined through institutional bidding and demanded a 20-30% discount.

BSEC officials, however, believe that the cut-off price determined through competitive bidding should be considered the fair value of shares. They argue that a separate discount for retail investors is unnecessary and that share prices should be determined by market forces rather than administrative decisions.

According to the officials, institutional investors determine share prices through competitive bidding under the book-building system. Therefore, the same cut-off price should apply to retail investors, a practice also followed in international markets.

However, the transparency and competitiveness of institutional bidding remain crucial. Any collusion or manipulation during the bidding process could result in an inflated cut-off price, exposing retail investors to the risk of purchasing shares at excessive prices.

BSEC officials said action could be taken against institutional investors involved in collusive bidding, including cancellation of quotas or licences, enforcement measures and even criminal proceedings.

They added that the 2025 rules introduced specific provisions for the first time to address bidding manipulation and collusion. The commission can now investigate allegations based on complaints or available information, although no automated system is currently in place to detect such practices.

BSEC spokesperson and Executive Director Abul Kalam said the 2025 Public Offer Rules require retail investors to receive shares at the cut-off price, adding that similar practices are followed internationally.

Former vice-president of the Bangladesh Merchant Bankers Association, Md Moniruzzaman, also supported selling shares to retail investors at the cut-off price. He argued that institutional bidding could reduce opportunities for price manipulation.

He said institutional investors must purchase shares at the prices they themselves offer. Therefore, bidding at artificially high prices could ultimately expose their own institutions to losses if market valuations fall below the bid prices.

Moniruzzaman also pointed out that lock-in restrictions prevent institutional investors from selling all their shares immediately after listing. During this period, companies’ quarterly financial results may reveal weaknesses in earnings and business performance, potentially pushing share prices down.

He said determining the fair value of shares was difficult and that prices should be left to market demand and supply rather than fixed through administrative decisions.

He also noted that the BSEC had previously attempted to determine share prices through a formula, which often resulted in institutional investors submitting identical bids and undermined genuine price discovery.

Historical examples have also strengthened retail investors’ arguments for discounted IPO shares. Best Holdings, which entered the stock market in 2024, had a cut-off price of Tk 35, while retail investors were offered shares at Tk 24, representing a 31.42% discount.

Similarly, Asiatic Laboratories had a cut-off price of Tk 50, but retail investors were offered shares at Tk 20, a discount of 60%.

The proposed amendments have therefore sparked debate over IPO pricing and investor protection. While the regulator and some market participants favour a uniform price based on competitive bidding, retail investors argue that the discount facility should not be withdrawn without ensuring transparency and fairness in the price-discovery process.