Your financial plan shows that your investment portfolio should include shares. You are aware of the investment risks of the capital market and you’re prepared to take it. For a start, you have decided to invest in shares by participating in an initial public offering (IPO) exercise. In an IPO exercise, investors will be able to buy shares directly from the company issuing the shares. How to start?
Here are some simple steps:
- Read and understand the prospectus
- Check the closing date for submission of application
- Understand the company you’re buying
- Get as much information possible on the IPO exercise from Bursa Malaysia website or the newspapers
- Choose how you want to make your application either by using –
a) the conventional printed application form; or
b) the Electronic Share Application (ESA) facility.
Using the application form
The application form is usually available in major newspapers and at issuing houses, stockbroking companies or financial institutions. You should send only ONE application form, as sending multiple applications is an offence under the Securities Industry Act 1983. If convicted, you are liable for a minimum fine of RM1 million or 10 years jail or both.
Before you apply —
- check your personal details – it must be the same as in your identity card
- open a CDS account if you have not
- to pay for your shares, attach a banker’s draft or cashier order for the amount of shares applied
- send the application form by post or directly to the issuing house.
If you are unsuccessful, you will receive a refund check from the issuing house.
Using the ESA facility
The ESA facility enables investors to apply shares at ATM of participating financial institutions. If you’re thinking of using the ESA facility, check whether the IPO you’re applying can be subscribed through the electronic facility and through which participating financial institutions. This information will be available in the prospectus.
In order to apply via the ESA, an investor must have —
- a CDS account
- an account with ATM facility with the participating financial institution
- sufficient funds in the account to purchase the shares.
The ESA simplifies the application process as it eliminates, among others, the need to:
- fill up an application form
- purchase a bank draft
- photocopy identity card
- purchase stamps
- mail or sent the application form
- encash refund cheques.
If successful, the applicant CDS account will be credited with the appropriate amount of shares allotted and a Notice of Allotment from the issuing house will be provided to confirm the quantity of shares credited. The appropriate amount will be debited from your account to pay for the shares you received.
What if your IPO application using ESA is unsuccessful? Upon completion of the balloting process, the issuing house will issue an instruction to the relevant financial institution on all its unsuccessful account holders’ applications. The financial institution will then credit the appropriate cash amount back into the banking account of the unsuccessful applicant.
However, no matter which method you use to participate in an IPO exercise, it does not absolve you from your obligation to make your investment decision an informed one.