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Securities and Exchange Commission (SEC) has suspended the issuance of initial public offerings (IPOs) by Premier Bank Limited, which intended to raise Tk 550 million from general public, SEC officials said Saturday.
The subscription of the bank's IPO was scheduled to start from February 22.
The action came following detection of "gross irregularities" in opening of thousands of subscribers' accounts with the different Premier Bank branches, one SEC official said adding "same people have opened thousands of accounts using some same addresses."
The Commission, which has formed a four-member committee to investigate the matter, feared that the Premier Bank authorities wanted to grab most of the IPOs themselves rather than giving them to the members of the public, violating SEC regulations.
"We have detected about 15,000 accounts being opened with a single Premier Bank branch using a lone address. We are investigating the intention of the bank," said Mansur Alam, executive director of the stock market regulatory body.
A deputy managing director of the Premier Bank said he had heard about the SEC action, but declined to comment. He said his bank was complying with a Bangladesh Bank order relating to issuance of IPOs.
The SEC said the action is vital to protect the interests of the public and build investors' confidence in the capital market.
The SEC board members held a meeting Saturday and discussed the Premier Bank's alleged misdeeds.
"The Premier Bank's activity is highly injurious to capital market, business ethics and peoples' confidence," Mansur Alam said.
Alam is heading the investigation team of which Mahabubul Alam, Farhad Ahmed, and ATM Tariquzzaman are also members. The team will submit its report to the SEC Chairman within 45 days.
The Commission may recommend legal actions and even may lodge criminal cases against the Premier Bank, a third generation private commercial bank, depending on the magnitude of irregularities.
The SEC is also investigating activities of Equity Partners Limited and Anwar Securities Limited for their involvement in the Premier Bank's IPO process as depository participants.
A letter has been sent to the Premier Bank headquarters in the city asking it to comply with the SEC order.
A mandatory rule to open beneficiary owners' (BO) accounts for applying primary shares has created a mad rush situation by a large number of investors in the stock market.
The unusual hyper-activities by the investors, however, will come to an end from today (Sunday) with the suspension of floatation of the initial public offerings (IPOs) by Premier Bank Ltd, a third generation private commercial bank (PCB).
The stock market regulatory body, Securities and Exchange Commission (SEC), Saturday suspended the IPO smelling a rat in the 'en masse opening' of BO accounts ahead of the subscription date by the bank.
The bank's IPO subscription was scheduled to begin on February 22.
"We have information that as many as 15,000 BO accounts were opened using a single address in Chittagong recently and no doubt, this is a gross unethical practice," one SEC executive told this correspondent.
According to market sources, as many as 312,000 of BO accounts have been opened with the Central Depository Bangladesh Ltd (CDBL) till Saturday.
The number was only 0.1 million until January 26.
Members of Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) earned a hefty amount in the recent months from the investors as service charge for opening BO accounts.
Market sources said the service charge varied from Tk 300 to Tk 1,500 for opening a BO account in the DSE.
"I have opened 300 accounts with a joint partner," one investor, declined to be identified, admitted to this correspondent.
Such incident is so ubiquitous in case of the Premiere Bank's' IPO, market sources alleged.
Apart from the service charge, two copies of passport size photos and a bank account are needed for opening a BO account.
"Since there was no regulatory authentication in case of photos and bank accounts of the investors concerned, the process got a cheap popularity among a large section of market operators as well as investors," sources concerned pointed out.
The investors were rushing in to open BO accounts to get hold of at least one market lot of new issues.
The mad rush has also affected the smooth operation of CDBL, the operating company of the central depository system (CDS).
"We did not expect such a huge response from the investors on BO account at all," one CDBL source told this correspondent.
The size of the IPO (Tk 550 million) of the Premiere Bank was the highest in the banking sector.
As per the present IPO rules, at least 111,510 applications were eligible to participate in the Premiere's IPO for 55,75,497 shares.
The SEC has introduced new IPO rule under which preferences are given to small investors applying for a minimum market lot of 50 shares.
The changed rules came into force at the time of the floatation of IPOs by Exim Bank Ltd last year (2004).
The IPO floatation by commercial banks was greeted overwhelmingly by the investors.
In 2003 and 2004, the IPOs of banks were oversubscribed by 21.9 times on an average.
Third generation PCBs - Mutual Trust Bank Ltd, Standard Bank, One Bank, Bank Asia, Mercantile Bank and Exim Bank - floated primary shares in 2003 and 2004.
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