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BOOK-BUILDING METHOD

BSEC at its wit's end over manipulation

Star Business Report
The chairman of the stock market regulator yesterday expressed deep frustration on the book-building method as it has failed to get fair prices for the recently listed companies.
Book-building is the process by which an underwriter attempts to determine the price to place a securities offering, such as an initial public offering, based on demand from institutional investors.
Institutional investors quote a higher price in the bidding through a collusive discussion, said M Khairul Hossain, chairman of the Bangladesh
Securities and Exchange Commission (BSEC).
"If they quote a higher price we have nothing to do," he said at the inaugural ceremony of a financial literacy programme for journalists.
But, market analysts said the issue managers advise the institutional investors to bid high, so that they get a good profit in the first few days of trading.
The Dhaka Stock Exchange (DSE) data shows the cut-off price of Aman Cotton wasTk40, Bashundhara Paper Mills Tk 80, Aamra Networks Tk 39 and ACME Laboratories Tk 77.
In the first few days of trading,
Aman Cotton saw its price soar to Tk 83, which is 107.5 percent higher than the cut-off price.
Bashundhara Paper's share price touched Tk 181.60, which is 127 percent higher than its cut-off price.
Acme's share price hit Tk 120.8, which is 56.88 percent more than the cut-off price. The share price of Aamra Networks shot up toTk 144.50, which is 270.51 percent higher than the cutoff price determined in the bookbuildingprocess.
When the institutional investors sell their shares, the price tumbles, analysts said.
Aman Cotton is now trading at Tk 47.80, Bashundhara Paper Tk 95.60, Aamra Networks Tk 59 and Acme Laboratories Tk 81.90, according to yesterday's DSE data.
The BSEC introduced the system - which is followed internationally - to dig out a good price following requests from issue managers, according to Hossain.
"The institutional investors have to give an explanation about their quotations."
A vested quarter always tries to de-stabilise the market during election time, he said.
"We are careful this time. Our monitoring has been increased so that anyone cannot be successful in realising their bad intentions," he added.
The event was jointly organised by the Capital Market Journalists' Forum (CMJF) and the BSEC. Imam Hasan Rubel, president of the CMJF, and commissioners of the BSEC Md Helal Uddin Nizami, Swapan Kumar Bala and Khondoker Kamaluzzaman were present at the meeting.