SEC backs profit, loss sharing

In a move to bring professionalism to the market, the Securities and Exchange Commission on Tuesday decided in principle to allow merchant bankers and retail investors to make joint investments on a profit-and-loss sharing basis.
The existing merchant banking rules, which do not permit such joint investments, will be amended to this effect, said Farhad Ahmed, executive director of SEC.
The decision was taken at a meeting of the commission, chaired by Chairman Faruq Ahmad Siddiqi.
Retail investors contribute more to joint funds, while merchant banks contribute less, the executive director said. “The ratio will be fixed later.”
The merchant banks will choose scrips guided by their professional know-how and company fundamentals, he said.
During any volatile situation, it was found, that the investors or clients borrowing from merchant banks went into panic sell-offs, even at losses, for loan adjustment. However, the clients were often under pressure from these banks for such sell-offs.
The commission thinks the joint investment system is necessary in consideration of the present perspective of the market. Once the new system becomes effective, merchant bankers who have sound experience and knowledge about the market can give advice to their clients, the SEC executive director said.
The merchant banker's responsibility will not be limited only to providing loans to their clients and realising those, their responsibilities will increase manifold, he added.
The SEC also approved the initial public offering (IPO) prospectus of Asia Insurance, for raising Tk 9 crore from the stock market, at Tuesday's meeting.
The insurance company will raise the amount by issuing 9 lakh ordinary shares of Tk 100 each.
As of March 31,2008, the earning per share of the company was Tk 52.16, while the net asset value per share was Tk 242.
The SEC executive director also said the commission has cancelled the condition of providing national ID card number while applying for an IPO.