SEC approves rules for level playing field

The Securities and Exchange Commission of Sri Lanka (SEC) said 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.

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

Subsequent to a consultative process with the Colombo Stock Exchange (CSE), 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.

With this backdrop the Commission approved the following rules effective March 15.

* A minimum of 40 percent of the offered shares (for a particular share class) in a public offer 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 to be initially made available for allotment to Sri Lankan growth or balanced unit trust funds licensed by the SEC comprising of 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 subject 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 over-subscription in the retail individual investor category shall be given first priority in allotment of under-subscribed shares.

* 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.