SEC sets lock-in to discipline market

The stock market regulator has introduced a lock-in period barring sales of new convertible shares or shares against warrants issued by a listed company.

From now, there will be a three-year lock-in for directors or those who hold 5 percent or more shares. It means shareholders and investment companies will not be able to sell the shares they possess in a listed company within three years from the issuance of securities.

For others, Securities and Exchange Commission (SEC) has set one year as the lock-in time.

"The lock-in shall also be applicable in case of issuance of equity security against loan or debt security having no predetermined conversion feature if such equity security is not issued at a price equal to last six months' weighted average market price at the stock exchange(s)," the SEC said.

The market watchdog imposed such conditions in a gazette notification that came into effect from Sunday.

In the notification, the SEC said the commission introduced the lock-in system to protect the "interest of investors, capital and securities markets".

The lock-in will also be applicable for companies that have already received nod from the commission for issuing new shares or convertible securities, and equity shares against loan or debt security.

The SEC introduced the lock-in following media reports on a DSE investigation that a foreign investment firm had entered into a share subscription deal with a locally listed company, Bangladesh Thai Aluminium (BD Thai), without any lock-in.

Lock-in is a measure by which investment companies are barred from selling before a certain time the shares they possess.

But, taking the opportunity of absence of the lock-in, the foreign firm, GEM Global Yield Fund, bought a huge chunk of shares against warrants and dumped almost all the shares within one and a half months of acquisition. The foreign firm thus repatriated $2 million from Bangladesh capital market, according to the DSE probe report, which was submitted to the SEC for necessary actions.

Earlier the lock-in system had been in place for all companies -- both foreign and local -- to avert short-term speculative trading, and flight of capital from the market.

The two companies, BD Thai and GEM, also stroke a deal under which BD Thai intended to give shares as 'loan' or 'debt security' to GEM, and GEM could sell the loaned shares any time.

But the central bank, instead of approving the deal, put two conditions -- the share borrower must arrange a guarantee in foreign currency by a foreign bank, and receive permission from the SEC.

Another listed company, Beximco Pharmaceuticals, has inked a share subscription deal with GEM, and also received permission from the SEC to issue warrants that are convertible to shares.