The Securities and Exchange Commission of Sri Lanka (SEC) has decided to facilitate a fair allocation of shares to retail individual investors and licensed Sri Lankan unit trusts during Initial Public Offerings (IPOs).
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, stated SEC in a press release.
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 Commission approved several rules to mitigate this situation effective from 15th March 2011.
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.
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