Current stock market of Bangladesh

Abstract

At some points of its business operation every company needs to raise money. To do this, companies can either borrow the same from somebody or raise the amount by selling ownership of the company. The later is known as issuance of stock. When a company go for public issue for the first time it is known as Initial Public Offering (IPO). IPO can be made through fixed price method, Book Building method and direct listing. In my report I have worked with the Book Building method. Book Building Method is the process by which an underwriter attempts to determine the offer price of an IPO based on demand from institutional investors. This method is basically a process to aid price and demand discovery. In our country book building method was introduced in 2009 but unfortunately it is now postponed because the system was one of the salient reasons for the 2010 stock market crash. Though the system is widely used in some developed and developing countries but in our country the context was different. It was mainly caused by fixing a high indicative price as the offer price of the IPO depends on the indicative price under this system. Because of the high indicative price the offer price was also high and investors expected that other stocks value is undervalued and it would go up in future. Under this speculation the investors invested in the capital market and it was back fired. As a result book building system was found to be the major reason major for the stock market crash. However, the system that is widely used found improper in country but this situation can be improved if there is a strong regulations and follow up by the SEC for determining the indicative price and the lock in period of 15 days can be increased to discourage higher bidding by the institutional investors. More importantly, room should be allowed for the IPO issues to be somewhat under-priced to attract the general investors for a win-win situation from both issuers and investors’ perspectives.