One of the common barriers in bringing more initial public offerings (IPOs) in the market is the inordinate delay in processing new issues. It is learnt that on an average about six to nine months is required for completing the whole process of a new issue -- from submission to the Bangladesh Securities & Exchange Commission (BSEC) to enlisting with the Dhaka Stock Exchange (DSE).
EXPEDITING NEW ISSUE APPROVAL: The slow pace of processing new issues is not conducive for the market at all. There must be a kind of legal binding to follow the timeline set for processing new issues. This means approval or rejection must have to be finalised within a set timeline. Some auditing measures can be put in place in order to avoid frequent rejection of new issues as a means of quick disposal merely for the sake of meeting the deadline. If it appears that the number of rejection increases, the submitted file can then be investigated by an independent committee to determine the actual reasons and lapses of any quarter for such rejection and accordingly corrective measures and punitive action, if necessary, can be taken.
DESIGNATED ISSUE MANAGERS: To bring new issue in the market, issue manager has to play a very crucial role. Issue managers are required to be highly qualified persons with strong analytical skills and professional expertise. They study in-depth the company's fundamentals, historical performance, management competence and future prospects. So, issue manager's analysis, findings, opinion and recommendations are very important because based on his recommendation and supporting documents, BSEC approves new issue. Further, BSEC has to provide approval in line with the new issue rules while DSE allows listing permission to new issue complying with the listing regulations. So the issue manager should be well conversant with all those rules. If the issue manager ensures submission in compliance with those rules, approval should not take a long time. Issue manager will have to be accountable and liable for any misrepresentation, false statement and any counterfeit document. Based on past track records, professional competence, resources, integrity and market reputation, all issue managers/firms should be rated. Issue managers/firms selected on the basis of higher rating/scores can be declared as designated issue manager/ firms who will be allowed to handle new issues of small and medium-sized companies or companies with less market reputation. New issues, if managed and submitted by the designated issue manager/firm, will be expeditiously approved by BSEC with minimum requirement. At the same time, BSEC's negligence, if any, such as unnecessary queries, failure to address the real problem and procrastination on deciding on any new issue should also be looked into.
DESIGNATED ACCOUNTING FIRMS: Like issue manager, accounting firm has a crucial role to play in capital market development. Accounting firm or a chartered accountant certifies a company's financial statement and balance sheet that depicts the company's performance. Based on the audited financial statement and balance sheet, issue manager conducts his analysis which is subsequently carefully examined by BSEC officials, who, if satisfied, approve the new issue. If company's account is not authentically certified and due diligence as well as accounting standards are not properly applied, this account may result in misleading investment decision and thus investors may be deceived.
DIGITALISATION OF NEW ISSUE SUBMISSION & APPROVAL PROCEDURE: Bangladesh has emerged as a digital country with rapidly growing use of technology in both public and private sectors. The country's two bourses have achieved tremendous success in using technology, particularly in the area of trading, settlement and real-time surveillance. Office automation has been done in DSE and BSEC. But the procedures of issue management have remained in the conventional manual system. Manual process of managing new issues not only delays the approval but also lacks transparency and accountability. So, immediate steps should be taken to digitalise the entire procedure of submission as well as approval of new issues. Nowadays, many web-based online applications are efficiently used in banking and financial operations. Such web-based programmes for managing new issues can be purchased or developed in-house at modest cost. Online issue management programmes should be restrictive in nature with centralised control where only legitimate users will have access with prior approval.
ONLINE ISSUE MANAGEMENT PORTAL: Online portals should have separate windows for each user, viz., the issuing company, issue manager/firm, bourses, and BSEC. Each window should be separate and viewing option should be provided based on each group's functionality and responsibility. Communication among all concerned dealing persons of different groups or stakeholders can be instantly carried out through intra-window messaging system under the same online portal. When a company will decide to go public, a profile of the company will be created on the online issue management portal with prior permission from the administrator. The company's access will be monitored and secured through unique ID and confidential password. As soon as the profile is created, the company will upload all necessary information and documents on the portal which will remain confidential and restrictive so no outsider will be able to view. After creation of the profile and uploading of all necessary information and documents, the company will sign agreement with the issue manager which can be done through either online bidding procedure or direct negotiation. All eligible/certified issue managers will have access to the portal but will not have viewing option until and unless issue management agreement is signed and access code is received. At this stage, issue manager will have access to the company's profile and submission details. When issue manager's due diligence is complete and the new issue is found viable, prospective and compliant with all BSEC and DSE rules and regulations, he will complete on-line submission. As soon as online submission is completed, the profile will automatically upload in BSEC's window for detailed examination. During this evaluation process, if any further clarification or additional documents are required, it can be posted on the same application. Similarly, reply to the query can be submitted through reply option of the same portal. In this way, when BSEC will be satisfied with the filing, it will approve the new issue by using approval field of the same programme. All required rules and regulations related to new issue can be preloaded in this system which will be used to automatically to verify every submission. This is briefly how online portal of issue management procedures function. Comprehensive application details can be designed and developed considering the requirement and suitability of all stakeholders.
Capital market is not a straightforward investment opportunity, but a complex, sensitive, highly risky and speculation-based investment sector which is controlled through stringent regulatory measures and oversight. Taking this into consideration, Bangladesh should move forward to bring more new issues in the market.
Nironjan Roy is a banker based in Toronto, Canada.
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