Call to create level playing field for small investors

Abu Dhabi: Small investors must be given equal opportunities to subscribe to shares in an IPO to prevent massive oversubscriptions and cornering of shares by the big investors, the Central Bank governor urged yesterday.

Sultan Bin Nasser Al Suwaidi said companies must create a level playing field for small investors by setting a limit to maximum subscriptions of shares in IPOs.

"Companies must set a limit for subscriptions in public offerings so that the small investor gets an equal chance and IPOs do not get heavily oversubscribed," Al Suwaidi told reporters during an informal chat.

The governor's remarks came in the wake of the plunge in UAE stocks last week to record lows that battered small investors.

Investor sentiment touched a new low as small investors began pushing the panic button.

Random allocation

Analysts concurred with Al Suwaidi's views saying such moves are steps are the need of the hour.

"Such a practice is adopted in most developed markets and it should be adopted here too. A minimum subscription with a cap on maximum subscriptions will definitely help prevent cornering of shares and over-subscriptions," said P. Krishnamurthy, a Dubai-based stock analyst.

"Also, random allocation is a technique followed in some markets where the system randomly allocates shares and hence some investors can go without allocation," he said.

Such measures are needed to discourage investor cartels but a law has to be passed to incorporate such changes, he added.

When small investors secure allocations in an IPO, it is unlikely they would go to the market to buy shares.

"But small investors are short-term players and they want to buy and sell shares. The moment they hear of another IPO, they liquidate their present holdings to apply for new shares," said Mohammad Yasin, Managing Director of Emirates Securities.