Though there is speculation that the Securities and Exchange Commission (SEC) would introduce new regulation to restrict the use of bank guarantees when subscribing to Initial Public Offerings (IPOs), a senior SEC official claimed they are not pursuing the matter on that line.
"A bank guarantee is an accepted legal tenor. So, we cannot bring regulations against it", SEC Director General Malik Cader said.
However, he noted that the SEC and Colombo Stock Exchange (CSE) have discussed the matter in detail, and, CSE might shortly come up with a directive for new IPOs, to give a better allocation for retailers.
"We all know that bank guarantees crowd out small investors, and big investors have an advantage over them. This should be stopped" Cader pointed out.
Bank guarantees in the recent past have become a sticking point, and a number of retail investors have voiced their concerns over their crowding out effect.
"Because of the heavy number of bank guarantees by big investors, the number of shares allocated to the small or retail investors has been very little in the recent past" a retailer told DM Business.
"I would like to term this as the 'bank guarantee fraud'. Everyone knows that bank guarantees do not reflect a genuine demand. Even though an IPO is subscribed a large number of times due to bank guarantees, it does not reflect the true picture of it," he explained.
The most recent example of this 'bank guarantee fraud', as some tend to term, was connected with Union Bank's IPO. The bank created a record, being the highest ever oversubscribed IPO, as it was oversubscribed by 225 times. However, unconfirmed reports said the issue was oversubscribed by more than 300 times.
source - www.dailymirror.lk
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