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SEC facilitates retail investors

Approves new rules to broad-base share ownership:

The Securities and Exchange Commission of Sri Lanka (SEC) decided to facilitate a fair allocation of shares to retail individual investors and licensed Sri Lankan unit trusts during Initial Public Offerings (IPOs), a SEC press release said yesterday.

The SEC has observed that the recent Initial Public Offerings (IPOs) were heavily oversubscribed due to investors using the bank guarantee option to submit IPO applications for a very large quantity of shares.


CSE trading floor

This has resulted in a majority of retail investors being allotted a small portion of the shares applied and has not created a level playing field in the Primary Market thereby hindering the process of broad basing share ownership in the country, the press release said.

The Commission approved several rules to mitigate this situation.

Under these new rules a minimum of 40 percent of the offered shares (for a particular share class) in a public offer has to be initially made available for allotment to retail individual investors.

A retail individual investor shall be defined as an individual investor who applies (for a particular share class) for up to a maximum of 3,000 shares or for a value of not more than Rs 100,000 whichever is higher.

Applicants submitting applications under other investor categories shall not make applications under the retail individual investor category.

A minimum of 10 percent of the offered shares (for a particular share class) in a public offer is to be initially made available for allotment to Sri Lankan growth or balanced unit trust funds licensed by the Securities and Exchange Commission of Sri Lanka (SEC) comprising not less than 500 unit holders resident in Sri Lanka making up of at least 50 percent of the fund (unit trust investor category). This rule will be subjected to compliance with SEC Directive made under Circular No. 01/2009 dated January 7, 2009.

In the event of an under-subscription in the unit trust investor category and an over-subscription in other investor categories, the oversubscription in the retail individual investor category shall be given first priority in allotment of under-subscribed shares, the statement said. In the event of an under-subscription in the retail individual investor category and an over-subscription in other investor categories, over-subscription in the unit trust investor category shall be given first priority in the allotment of under-subscribed shares.

These rules will be effective from March 15, 2011, the statement said.

Subsequent to a consultative process with the Colombo Stock Exchange (CSE), the Colombo Stock Brokers Association (CSBA) and IPO Managers, the SEC has decided to facilitate a fair allocation of shares to retail individual investors and licensed Sri Lankan unit trusts during IPOs.


Daily News Business interviewed some of the experts in the industry to get their comments on the new regulation.

The Unit Trust Association of Sri Lanka President, S Jeyavarman said the unit trust industry is very pleased with the move by the Securities and Exchange Commission (SEC). “This will help small investors who are not going for the Initial Public Offerings (IPO’s) directly and it is a good opportunity for the unit trust industry to participate in IPOs. It will also help the unit trust industry to own a reasonable amount of shares as we hold the shares for a long-term. Investing on IPO’s via unit trust ensure the investors secure shares where they could really enjoy the benefits of the investment,” he said.

Asha Philips Managing Director, Dimuthu Abeysekara said the directive is encouraging. It is important to give prominence to small investors too. That encourages and provides confidence to them. During the past one and half years many new CDS accounts were opened due to IPOs and small investors, he said. C de S

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