SEC's new plan
The country's capital market watchdog (SEC) is planning to introduce a new method of IPO floatation called 'book building' procedure replacing the existing lottery method. Under the proposed 'book building' method, underwriters would buy all the shares to be floated by business enterprises into the stock markets through a competitive bidding procedure. Underwriters would then choose some seller groups or brokers to put up those shares for sell to the retail investors. The share issuing companies will get their share prices from underwriters who will be the highest bidder in the bidding procedure. Under this system, no lottery will be held to allot shares among the general investors. This is a wrong decision by SEC and it will drive away huge general investors from the capital market. This sheer injustice to the small investors will hamper capital market's growth severely by serving the interest of some particular market players and 'issuing companies' but not the general investors'. SEC claims that the new system will ensure quality issues. This is not true. If SEC wants to woo quality issues, they can do it by not approving the IPO proposals of weak and doubtful companies.
So SEC should not introduce such a new system that would permanently drop out general investors from the capital market making the market fully 'elite class' oriented. If the existing IPO floatation method continues, chances are high that these small and new investors will, someday, come into secondary market. But the proposed new method is likely to destroy the recently developed primary market. We hope SEC will not only consider the interest of the issuing companies and 'elite class' investors but also the general investors'. SEC should consider the existing system of IPO floatation as the best one and should continue it for the greater interest of the general investors.
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