Merchant Bankers

An advisory financial services.Any person who engaged in the business of issue management by making arrangement for selling/buying/subscribing to securities or acting as manager/consultant/advisor or rendering of corporate advisory service in relation to such issue management.

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Role in Public IssueMerchant Bankers perform the following functions relation toPublic Issues:1. Drafting prospectus and getting the approval2. Obtaining the consent of all agencies in Public Issue3. Pattern of advertisement including the earliest closing date4. Dates of opening and closing of issue including the earliest

closing date5. Arrangement for collections of Application money6. Deciding the basis for allotment in consultation with Stock

Exchange authorities7. Finally, arrangement of refund of application money in case

of non-allotees8. Assisting in Euro and GDR Issues.

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Functions and services• Corporate Counseling• Project Counseling• Pre-investment Studies• Capital Restructuring• Credit Syndication and Project Finance• Issue Management and Underwriting• Portfolio management• Working Capital Finance• Acceptance Credit and Bill Discounting• Mergers, Amalgamations and Takeovers• Venture Capital• Lease financing

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IN SHORT

• Management of debt and equity offerings • Placement and distribution• Corporate advisory services• Project advisory services • Loan syndication • Providing venture capital

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Issue

• Means an offer for sale/purchase of securities by a body corporate/other person(s) on its (their) behalf to or from the public or from the holders of their securities through the merchant banker.

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ISSUE MANAGEMENT INTERMEDIARIES

• Merchant bankers/ lead managers• Underwriters• Broker to an issue• Debenture trustee• Banker to issue • Registrar to issue and share transfer agent• Portfolio manager• Prohibition of fraudulent and unfair trading practices relating

to the securities market• Prohibition on dealing/ communication/ counseling on

matters relating to insider trading.

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Registration

• Application for grant of certificate with non refundable fee in form 1.

• SEBI (Merchant Banker) Regulations, 1992.• Valid for a period of three years from the date

of it issue to the applicant.

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Categories of application

• Category-I: To carry on any activity of the issue

management consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie up of financier and final allotment and refund of the subscriptions

To act as adviser, consultant, manager, underwriter, portfolio manager.

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Categories of application

• Category-IITo act as advisor, consultant, co-manager,

underwriter, portfolio manager.• Category-IIITo act as underwriter, adviser, consultant to an

issue.• To act only as advisor or consultant to an

issue.

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Fee

• Application fee of Rs. 25,000• Registration Rs. 10 lakhs• Renewal fee of Rs. 5 lakh every years from the

fourth year from the date of initial registration.

• Three month before the expiry of the period of certificate in form –I with non refundable fee.

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Portfolio Manager

• An applicant can carry on the activity as portfolio manager only if he obtains separate certificate of registration under the provisions of the SEBI (Portfolio Manager) Regulations, 1993.

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Important amendment• With effect from 9th December 1998, SEBI has abolished

the categories of II, III & IV. There will be only one category of Merchant Bankers. An application for grant of certificate as Merchant Banker can only be made for carrying on the following activities:

• To carry on any activity of issue management, which will, inter-alia, consist of preparation of prospectus and other information relating to the issue, determining financial allotment and refund of the subscriptions, and

• To act as advisor, consultant, manager, underwriter, portfolio manager.

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Requirements

• Applicant shall be a body corporate other than a non banking financial company

• Necessary infrastructure • Has in his employment minimum 2 person having

experience of merchant banking.• The capital adequacy requirement shall be a net

worth of not less than 5 Crore.• The applicant has the professional qualification from

an institute recognized by the government in finance, law or business management.

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Effect of refusal to grant certificate

• Any merchant banker whose application for a certificate has been refused by the board cease to carry on any activity as merchant banker.

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Appointment of lead merchant banker

• All issue should be managed by at least one merchant banker functioning as a lead merchant banker.

• Lead merchant banker is not required in an issue of offer of rights to the existing members with or without the right of rejection the amount of the issue of the body corporate does not exceed 10 lakhs.

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Code of conduct

• Every merchant banker shall follow code of conduct as specified in schedule III.

• Shall not carry any business other than that in the securities market. (other than a bank or a public Financial Institution).

• Shall furnish to the board half-yearly unaudited financial results.

• Record maintenance for a minimum period of 5 years.

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Code of conduct

• Ensure that any change in regulation status/ any penal action taken by the SEBI or any material change in the merchant banker’s financial status, which may adversely affect the interests of clients/investors is promptly informed to the client.

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Major Responsibilities

• Every lead manager has to enter into an agreement with the issuing companies, setting out their mutual rights, liabilities and obligations relating to such issues, and in particular to disclosures allotment and refund

• A statement specifying these is to be furnished to the SEBI at least 1 month before the opening of the issue for subscription.

• In case of more than one lead manager/banker their respective responsibilities.

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If associated to issuing company

• A leader merchant banker cannot manage an issue.• It is necessary for a lead manager to accept a

minimum underwriting obligation of 5 % of the total underwriting commitment or 25 lakh whichever is lesser.( Category-I)

• If he is unable to do so, he has to make arrangements for underwriting an equal amount by a merchant banker associated with that issue under intimation to the SEBI.

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Inspection by SEBI

• Book of accounts• Complaints received by investors, other

merchant bankers or any other person.• Investigation suo moto in the interest of

securities business. BEFORE INSPECTION, NOTICE OF INSPECTION

IS REQIRED.

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Liability in case of default

• Shall be liable for one or more actions specified under chapter V of the SEBI

( Intermediaries) Regulations, 2008.

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