Stock market regulator developing a system to detect fake IPO applications

Published On: July 15, 2023 08:17 PM NPT By: Republica | @RepublicaNepal

Impact of a lesson learned from the case of Ghorahi Cement which was blamed for allowing millions of fake applications

KATHMANDU, July 15: The CDS and Clearing Ltd has stepped up its efforts to implement the ‘real time system’ of the applicants of the initial public offerings (IPOs) to check fake applications during the subscription process.

The front line regulator of the stock exchange market said it has started a workout to implement the system. According to an officer of the CDS and Clearing, the real time scrutiny system can verify the status of the applicants within a short time interval compared to the existing provision for the process.

As of now, the banks concerned take around one week to verify the bank account balance of the applicants. Taking advantage of the time lag in the system, a number of applicants, who do not have any bank balance, were found applying for the IPOs floated by Ghorahi Cement in a recent case.

On June 15, the cement manufacturer opened 6,911,670 units of shares for the general public at the premium rate of Rs 435 per share. Later on it was put on hold after the sector’s regulator had found the company considering many applicants who were not backed by bank accounts, to apply for the primary shares.

Due to the case of ‘fake subscription’ on issuing IPOs, a large amount of applicants’ money had to be put on hold just because of the flaws seen in the subscription process. Citing the pressure from investors, the Securities Board of Nepal (Sebon) resumed the issuance process without completing its investigation.

The Sebon had estimated applications for more than 10 million shares as fake subscriptions. The market players are suspected to have gone into malpractice just to show an overwhelming response towards the company’s share.

According to the CDS and Clearing, it is installing new software for the real time cross-check of the applications. The new app connects the regulator with the banks which the investors use to settle the financial transaction. The prompt scrutiny system helps prevent fake applicants.

As of now, more than 5.749 million demat accounts have been opened. Similarly, 4.821 million have Mero Share accounts.