B Mirror Desk : The Capital Market Reform Task Force has proposed final amendments that increase the share allocation for general investors in initial public offerings (IPOs) from 50% to 60%, while reducing the allocation for eligible investors to 40%. These amendments were submitted to the Bangladesh Securities and Exchange Commission (BSEC) on Monday. In March, the task force had released draft proposals for public feedback, which were subsequently revised based on the input received.

Initially, the proposals aimed for an equal distribution of IPO shares between general and institutional investors to mitigate risks for retail investors and enhance institutional involvement. However, the majority of feedback during the consultation favored a larger quota for general investors, prompting this adjustment. The task force received over 600 responses regarding the proposed changes, but only minor modifications were made as there were no substantial suggestions for altering the draft rules.

Interestingly, some respondents expressed a desire to pause new IPO approvals for the next three years or until the DSE’s key index reaches 7,000 points, although these suggestions were deemed outside the legal framework and were unexpected by the task force.

Subsequently, during the commission led by Shibli, the allocation was adjusted to 75% for general investors and 25% for institutions. Consequently, IPOs such as that of Midland Bank experienced undersubscription in the public category, necessitating coverage by underwriters. The task force has proposed several important measures to enhance the IPO process. The bidding limit for eligible investors using the book building method to set the share price will be lowered from 2% to 1% to promote wider participation. The 10% circuit breaker will not be enforced during the first three days after listing to mitigate extreme price volatility.

Additionally, no discounts will be provided from the cut-off price, ensuring that issuers obtain their anticipated premium. To draw in investors, the Tk50,000 investment threshold for IPO applications will be eliminated. The quality of the market will be enhanced by increasing the availability of quality stocks. Direct listings will be permitted for multinational companies and large firms with turnovers exceeding Tk1,000 crore, with a reduced offload requirement of 10%. Corporations with outstanding loans over Tk1,000 crore will be mandated to list.

The minimum paid-up capital for IPOs will be increased to Tk30 crore for fixed-price offerings and Tk50 crore for book-building IPOs. Regarding mutual funds, the Capital Market Reform Task Force has presented its final recommendations on the Mutual Fund Rules, introducing several notable changes. A key proposal requires that all closed-end funds be redeemed at the end of their initial term as specified in the trust deed. However, if 75% of unit holders (by ownership) present at an Extraordinary General Meeting (EGM) vote in favor, the fund may be transitioned into an open-end fund.

For closed-end funds that have had their tenures extended in the past, an Extraordinary General Meeting (EGM) must occur within six months of the implementation of the new regulations. If 75% of unit holders consent to the conversion, the fund will undergo transformation; if not, it must be redeemed within three months.

The recommendations also stipulate tailored asset allocation policies for various fund types, including growth, balanced, Shariah-compliant, fixed income, and money market funds. Investment limits have been updated, increasing the cap for single-stock investments from 10% to 15%, and raising the sectoral investment limit from 25% to 30%.

Investments in unlisted equity securities are now banned, except for bonds or preference shares issued by ‘A’ category companies listed on the main board. To promote cost efficiency, the Total Annual Expense Ratio (TER) is capped at 3%, with a minimum of 2% for fixed income and money market funds. In terms of dividend distribution, closed-end funds are mandated to distribute at least 70% of their annual profits as dividends, while open-end funds must distribute a minimum of 30%, based on either the annual profit or the weighted average earnings per unit, whichever is lower.