No lock-in leads to short-term gains

EBL First Mutual Fund, sponsored by Eastern Bank Limited, made trading debut on the stock exchanges on August 19.
It is a Tk 100 crore mutual fund, of which Tk 20 crore or two crore units of Tk 10 each was kept for initial public offering (IPO). From the rest, Tk 60 crore, or six crore units, was for pre-IPO placement and Tk 20 crore or two crore units for sponsors.
On the first day, around 2.55 crore units were sold on the two bourses and in the next two days other 1.44 crore units were sold, totalling around 4 crore units during the first three days.
The figures show the transaction was bigger than the IPO size, and it was possible because of no lock-in on sale by private placement share or unit holders.
Although there was a recommendation for introduction of lock-in on sale by the private placement holders, the Securities and Exchange Commission (SEC) recently decided that there will be no lock-in period for private placement.
The Consultative Committee of SEC had recommended for the lock-in, saying that the private placement holders get more benefit than general investors.
There should be a lock-in for at least six months by the private placement holders to bring a balance between the private placement holders and general investors, suggested the committee.
Lock-in is a measure by which shareholders or unit-holders are barred from selling their holding shares or units before a certain period.
“We have seen the private placement holders selling shares on the very first day of the trading debut,” said Yawer Sayeed, managing director of AIMS of Bangladesh, an asset management company.
Usually, private placement is a long-term investment by individuals, institutions and investment companies.
But the tradition of selling shares from the very beginning of debut indicates that it is not investment, it is just trading for short-term gains, Sayeed said. “It is dangerous for the market,” he added.
“There should be lock-in for the private placement holders,” said Sayeed, who is also a member of the SEC Consultative Committee.
“Either private placement should be banned or lock-in should be introduced. And instead of private placement, IPO size should be increased,” he suggested.
However the stock market regulator has imposed a six-month lock-in on institutions, which will get shares or units in their own portfolio through private placement.
The SEC sought opinions from public after the Consultative Committee's recommendation on lock-in introduction.
The SEC received 21 opinions. Of those, 17 were from institutions, which opposed introduction of lock-in, and four were from individuals, who favoured lock-in on private placement, according to officials.
But the SEC imposed lock-in on institutions' own portfolio, not on individuals.
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