SAK Final Report

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A report on Merchant Banking and Portfolio

Management Rules: A comparison of Bangladesh

and India

Submitted to:

SALAHUUDIN AHMED KHAN

Professor

Department of Finance

University of Dhaka

Submitted by:

Group 13

MBA 12th batch


University of Dhaka

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TABLE of CONTENTS

3

SL no Contents Page

01 Letter of Transmittal 4

02 Acknowledgement 5

03 Executive summary 6

04 Objective 7

05 Methodology 7

06 Merchant Banking 8-10

07

08

Merchant banking in Bangladesh

Merchant Banking In India

11-16

16-25

08 Comparison of Bangladesh and India 26-46

09 Conclusion 47

10 References 48

11 Bibliography 53


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Date: 19th April, 2011

To

Salahuddin Ahmed Khan

Professor

Department of FinanceUniversity of Dhaka

Sub: Submission of Report on Merchant Banking and Portfolio Management Rules: A

comparison of Bangladesh and India

Dear Sir,

It is a matter of immense pleasure for us to present before you the report titled Merchant

Banking and Portfolio Management Rules: A comparison of Bangladesh and India as per

your instructions. Your guidance and teaching helped us as an invisible hand.

We have tried our best to make this report a fault free one and we hope that you will take any

unintentional mistake with kind consideration.

Sincerely yours

Group 13

MBA 12th Batch


University of Dhaka

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Acknowledgement

We gratefully acknowledge the guidance and assistance received from our

group members and classmates while carrying out the study. Salahuddin

Ahmed Khan Sir provided us with the necessary guidance in successfully

preparing the report. He continuously reminded us about the preparation

of this report paper and gave the necessary out-line to write down the

paper spending his valuable time. Without his untiring efforts, completion

of this report paper would have been impossible. Above all, this report is a

combined effort of sincerity, efficiency and determination of all the group

members. We want to pay our gratitude to all mighty Allah for enabling us

to prepare the report successfully.

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E X E C U T I V E S U M M A R Y E X E C U T I V E S U M M A R Y

In banking, a merchant bank is a financial institution primarily engaged in offering financial

services and advice to corporations and wealthy individuals on how to use their money. The term

can also be used to describe the private equity activities of banking.

The Progress of any economy mainly depends on the efficient financial system of the country.

This importance of the financial sector reforms affirms an effective means for solving the

problems of economic, financial and social in the developing nations of the world. The progress

of the securities Industry of any country depends mainly on the flow of funds. In fact, Capital

generation is the lifeblood of the capital market without which the health and soundness of the

financial system cannot be geared up and for which well-developed capital market as well as

money market is essential. The merchant bankers are those financial intermediaries involved

with the activity of transferring capital funds to those borrowers who are interested in borrowing.

They guarantee the success of issues by underwriting them. Merchant Banks are popularly

known as issuing and accepting houses. Unlike in the past, their activities are now primarily

non-fund based (Fee based).They offer a package of financial services. The basic function of

merchant banks is marketing corporate and other securities that are guaranteeing sales and

distribution of securities and also other activities such as management of customer services,

portfolio management, credit syndication, acceptance credit, counseling, insurance etc.

Merchant banking rules differ from country to country. So we tried to bring out the difference

of the rules of Bangladesh and India.

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Definition of Merchant Banking

The Progress of any economy mainly depends on the efficient financial system of the country.

This importance of the financial sector reforms affirms an effective means for solving the

problems of economic, financial and social in the developing nations of the world. The progress

of the securities Industry of any country depends mainly on the flow of funds. In fact, Capital

generation is the lifeblood of the capital market without which the health and soundness of the

financial system cannot be geared up and for which well-developed capital market as well as

money market is essential. The merchant bankers are those financial intermediaries

involved with the activity of transferring capital funds to those borrowers who are interested in

borrowing. They guarantee the success of issues by underwriting them. Merchant Banks

are popularly known as issuing and accepting houses. Unlike in the past, their

activities are now primarily non-fund based (Fee based).They offer a package of

financial services. The basic function of merchant banks is marketing corporate and other

securities that are guaranteeing sales and distribution of securities and also other activities such

as management of customer services, portfolio management, credit syndication, acceptance

credit, counseling, insurance etc.

In banking, a merchant bank is a financial institution primarily engaged in offering financial

services and advice to corporations and wealthy individuals on how to use their money. The term

can also be used to describe the private equity activities of banking.

According to Cox, D. merchant banking is defined as, merchant banks are the financial

institutions providing specialist services which generally include the acceptance of bills of

exchange, corporate finance, portfolio management and other banking services.

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History of Merchant Banking:

According to Wikipedia, merchant banks, now so called, are in fact the original "banks". These

were invented in the middle Ages by Italian grain merchants. As the Lombardy merchants and

bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced

Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient

practices from the Middle and Far East silk routes. Originally intended for the finance of long

trading journeys, these methods were now utilized to finance the production of grain.

The Jews could not hold land initially, so they entered the great trading piazzas and halls of

Lombardy, alongside the local traders, and set up their benches to trade in crops. They had one

great advantage over the locals. Christians were strictly forbidden the sin of usury, defined as

lending at interest. The Jewish newcomers, on the other hand, could lend to farmers against crops

in the field, a high-risk loan at what would have been considered usurious rates by the Church; but

the Jews were not subject to the Church. In this way they could secure the grain-sale rights against

the eventual harvest. They then began to advance against the delivery of grain shipped to distant

ports. In both cases they made their profit from the present discount against the future price. This

two-handed trade was time consuming and soon there arose a class of merchants who were tradinggrain debt instead of grain.

The Jewish trader performed both finance (credit) and an underwriting (insurance) functions. He

would derive an income from lending the farmer money to develop and manufacture (through

seeding, growing, weeding, and harvesting) his annual crop (the crop loan at the beginning of the

growing season). He would underwrite (insure) the delivery of the crop (through crop or

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commodity insurance) to the merchant wholesaler who was the ultimate purchaser of the

farmers harvest. And he would make arrangements to supply this buyer through alternative

sources (the merchant function) of supply (such as grain stores or alternate producer markets),

should any particular farming district suffer a seasonal crop failure. He could also keep the

farmer (or other commodity producer) in business during a drought or other crop failure, through

the issuance of a crop (or commodity) insurance against the hazard of failure of his crop.

Thus in his underlying financial function, the merchant banker (trader) would ensure the

continuous smooth flowing of the commodity (crop, wool, salt; salt-cod, etc.) markets by

providing both credit and insurance.

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Merchant Banking in Bangladesh:

Merchant banks were allowed to operate with the hope of playing a meaningful role in salvaging

the country's limping stock market, by generating fresh funds, following the 1996 stock market

crash. So far, a total of 31 companies received merchant banking licenses from the Securities andExchange Commission. The registered merchant banks are: Janata Bank Limited, BRAC Bank

Limited, City Bank Limited, Premier Bank Limited, Mutual Trust Bank Limited, Industrial

Development Leasing Company of Bangladesh Ltd, Uttara Finance and Investment Limited,

Banco Trans World (Bangladesh) Limited, Fidelity Assets and Securities Company Ltd., N D B

Capital Ltd., Bay Leasing and Investment Limited, Alliance Financial Services Ltd., Business

and Management Co. Ltd., Swadesh Investment Management Limited, Lanka Bangla Finance

Limited, Grameen Capital Management Limited, South Asia Capital Ltd., Prime Finance

&Investment Ltd., EC Securities Ltd., Mercantile Securities Limited, GSP Finance Company

(Bangladesh) Ltd., Bangladesh Mutual Securities Ltd., BRAC EPL Investment Ltd, Prime Bank

Limited, Arab Bangladesh Bank Ltd.,ICB Capital Management Ltd., Export Import Bank of

Bangladesh Ltd. (EXIM Bank), Union Capital Limited , AAA Consultants and Financial

Advisers, Citigroup Global Markets Bangladesh Private Limited, Trust Bank Ltd, Southeast

Bank Ltd, Standard Bank Ltd, Sonali Bank Limited and Agrani Bank Limited.

Of them, a total of 29 companies received merchant banking licenses from the commission

between January 1998 and April 2002. The Citigroup Global Markets Bangladesh Private

obtained the license in the year of 2007 and the Trust Bank in the year of 2008. Six more FIs are

going to be approved by the SEC. The SEC on September 7, 2008 cancelled the merchant

banking license of the Equity Valuation Research and Distribution Ltd. The Securities and

Exchange Commission on October, 2008 cancelled merchant banking licenses of the First

Securities Services Ltd and the Raspit Securities and Management Limited with immediate effect

since they remained inactive for years together. The First Securities Services was given license

to act as issue manager while the Raspit Securities and Management as full-fledged merchant

bank, which was allowed to perform as issue and portfolio manager as well as underwriter for

clients. In the year of 2009, of the then 28 merchant banks, 23 had full-fledged merchant banking

license, while four had only issue management license and one had only portfolio management

license.

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The central bank of Bangladesh asked the commercial banks to run their merchant banking

business through separately formed subsidiary companies, officials and bankers. Under those

new regulations, the banks had to convert their existing merchant banking wing or department

into a separate subsidiary company by January 31, 2010.It helped to ensure transparency of the

merchant banking business. Recently, securities regulators gave its go-ahead to six more

financial institutions (FIs) to operate merchant banking. Because, analysts questioned their

expertise and financial base, the Securities and Exchange Commission (SEC) also approved

rights offer of Bay Leasing and Investment Ltd. The six financial institutions are Jamuna Bank,

Mutual Trust Bank Ltd, The City Bank, Summit Group's Cosmopolitan Traders Private Ltd,

Green Delta Insurance and Alpha Capital Management Ltd, a unit of Progressive Life Insurance.

According to the SEC officials, the approval will bring the total number of merchant banking at

37. By giving nod to the six FIs to operate as merchant banks, the SEC has increased maximum

limit of the merchant banking operation in the stock market to 50 from 35. But, although 31

merchant banks are operating, only a few (only some) are active while the performance of the

rest is "far from being satisfactory." So far, the commission has scrapped six licenses ofmerchant banks including First Securities Services Ltd, Prime Securities and Financial Services

Ltd, and Mercantile Securities Ltd. Bay Leasing and Investment Ltd will issue one rights share

against one existing share to bolster its capital base and to raise the capacity of SME credit to

meet Bangladesh Bank's directive. It will float 30,60,000 ordinary shares as rights offer of Tk.

100.00 each at an issue price of Tk. 350.00 per share (including a premium of Tk. 250.00 each).

Merchant Banking Operations in Bangladesh:

Although in the U.S., merchant banks offer a wide range of activities, including portfolio

management, credit syndication, acceptance credit, counsel on mergers and acquisitions,

insurance, etc, in case of our country, these services may differ. In Bangladesh, a merchant bank

can perform multiple operations including underwriting, issue management, portfoliomanagement, merger & acquisition etc. The merchant banking activities were largely fostered by

two distinct developments: Merger & acquisition activities and increased demand for venture

capital.

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1. Underwriting:

Underwriting operation is one of the important functions of a merchant banker by which it can

increases the supply of stock/shares and debentures in the market. It is an arrangement whereby

the underwriter undertakes to subscribe the unsubscribed portion of shares/debentures offered by

any public limited company. This encourages the prospective issuers to offer shares/debentures

to the public for subscription and they can raise funds from the public.

One or more investment banking firms may underwrite public offerings. The underwriters have the

responsibility of pricing new shares and selling them to investors. The company pays the

underwriters a fee. Underwriter also provides advice to a company issuing securities or to an issue

manager.Before granting authority to 17 non-bank financial institutions in 1997 to conduct

merchant banking business in Bangladesh under the Securities and Exchange (Merchant Bankersand Portfolio Manager) Regulations 1995, specialized financial institutions, and the nationalized

commercial banks and insurance companies were the key underwriters in the country's securities

market.

2. Issue Management:

Issue Management function of merchant Banking helps capital market to increase the supply of

securities. Being a Issue Manager these FIs provide assistance to the Private Limited Companies

intended to be converted into Public Limited Companies by way of obtaining necessary permission

from the relevant authorities, preparing prospectus for public issue of shares and debentures,

involving itself in the collection of application money, scrutiny of applications, arranging for

lottery relating to allotment, if required, allotment of shares and debentures, refund of application

money etc.

3. Portfolio Investment Management Services:

Portfolio means a collection of investments owned by an investor, an institution or a mutual fund

and portfolio manager means the entity responsible for investing a mutual fund's assets, mapping

out its investment strategy and managing day-to-day securities trading. Portfolio management is

the process of building, managing and assessing an inventory of company products and projects.

One of the most important functions of merchant banking is to provide Portfolio Management

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service to the customer. Basically, Portfolio Management Services program has four different

wings to provide portfolio investment management services. The SEC allowed banks to launch

merchant banking operation through opening of separate wing mainly to deal in portfolio

investment o n behalf of clients' account in order to channel pool of investors' fund into the stock

market in an organized manner.

4. Merger and Acquisition:

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate

strategy, corporate finance and management dealing with the buying, selling and combining of

different companies that can aid, finance, or help a growing company in a given industry grow

rapidly without having to create another business entity. Merchant banking helps to negotiate

companies in this case.Other functions that differ from FIs to FIs are Factoring, Asset Securitization, OTC Market,

Capital Re-Structuring etc. In addition these FIs can also perform the activities of project

counseling, Lending to stock investors, Pre-Investment Studies, etc.

Laws and Regulations:

The SEC granted authority to 17 non-bank financial institutions in 1997 to conduct merchant

banking business in Bangladesh under the Securities and Exchange (Merchant Bankers and

Portfolio Manager) Regulations 1995,

The Securities and Exchange Commission (SEC), invited letters of intent from 14 institutions for

the registration of merchant banks based on SRO No. 59 of 24 April 1996, and a decision taken

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by it on 17 August 1997. Prior to this decision, seven (7) institutions submitted such letters of

intent and SEC gave registration to a total of 19.

Under the SEC merchant banker licensing rules, a merchant bank working only as issue manager

has to submit at least a documented proposal for an initial public offer of a company, while a

merchant bank licensed to act only as portfolio manager has to form at least five new portfolios of

its clients besides its own, and a merchant bank working as a full-fledged merchant bank has to

manage one IPO, to be underwriter of two issues and form five new portfolios of its clients besides

its own in a calendar year. A full-fledged merchant bank has to perform at least two operations

among the three including managing portfolio in a calendar year.

Qualifications of Merchant Banker and Portfolio Manager:

No person shall be allowed to work as a merchant banker & portfolio manager without

having the registration certificate under this regulation from the commission

For acting as a merchant banker it should be a company, statutory organization or any

institution permitted by SEC. Those who are operating other than such form of

organization before this amendment - need to be converted in to company within 6

months after such notification( added June 16 2008)

Stock dealer, stock broker, asset management company of mutual fund or trustee

If more than 50% of the applicant companys board of directors is already in the board of its

subsidiary company or parent company.

The Role of Merchant Banking in Bangladesh:

If F I s get the license, apart from merchant banking, these will be able to ensure a huge

liquidity supply to the stock market. The capital market has been in a liquidity crisis since the

introduction of direct listing rules in 2006, as five state-owned enterprises and two privately-run

companies raised thousands of crores of taka from the market, according to experts. To face such

a crisis, more merchant bankers should be allowed to operate in the market, said an expert.

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The necessity of issuing merchant banking license by the Securities and Exchange Commission

(SEC) is also seen by some experts as an option to lessen the alleged dominance of the existing

merchant banks in the stock market. This will also be very helpful for the investors and firms.

Merchant Banking in India

Merchant banking originated through the entering of London merchants in foreign trade through

acceptance of bill. Later, the merchants assisted the Government of under developed countries in

rising long terms through floatation of bonds in London money market. Over a period they

extended their activities to domestic business of syndication of long term and short term finance,

underwriting of new issues, acting as registrars and share transfer agents, debenture trustees,

portfolio managers, negotiating agents for mergers, takeovers etc.

Merchant banking activity was formally initiated into the Indian capital Markets when Grindlays

bank received the license from reserve bank in 1967. Grindlays started with management of

capital issues, recognized the needs of emerging class of entrepreneurs for diverse financial

services ranging from production planning and system design to market research. Even it

provides management consulting services to meet the requirements of small and medium sector

rather than large sector. Citibank Setup its merchant banking division in 1970. The various tasks

performed by this divisions namely assisting new entrepreneur, evaluating new projects, raising

funds through borrowing and issuing equity. Indian banks Started banking Services as a part of

multiple services they offer to their clients from 1972. State bank of India started the merchant

banking division in 1972. In the Initial years the SBI's objective was to render corporate advice

And Assistance to small and medium entrepreneurs. Merchant banking activities is of course

organized and undertaken in several forms. Commercial banks and foreign development financeinstitutions have organized them through formation divisions, nationalized banks have formed

subsidiaries companies and share brokers and consultancies constituted themselves into public

limited companies or registered themselves as private limited Companies. Some merchant

banking outfits have entered into collaboration with merchant bankers abroad with several

branches. Here is the name of some merchant bankers in India:

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Public Sector Merchant Bankers:

SBI CAPITAL MARKETS LTD

PUNJAB NATIONAL BANK

BANK OF MAHARASHTRA

IFCI FINANCIAL SERVICES LTD

KARUR VYSYA BANK LTD

STATE BANK OF BIKANER AND JAIPUR

Private Sector Merchant Bankers:

ICICI SECURITIES LTD.

AXIS BANK LTD. (FORMERLY UTI BANK LTD.)

BAJAJ CAPITAL LTD.

TATA CAPITAL MARKETS LTD.

ICICI BANK LTD.

RELIANCE SECURITIES LIMITED.

KOTAK MAHINDRA CAPITAL COMPANY LTD.

YES BANK LTD.

Foreign players in Merchant Bankers:

GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD.

MORGAN STANLEY INDIA COMPANY PVT LTD

BARCLAYS SECURITIES (INDIA) PVT. LTD

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BANK OF AMERICA, N.A

DEUTSCHE BANK

DEUTSCHE EQUITIES INDIA PRIVATE LIMITED

BARCLAYS BANK PLC

CITIGROUP GLOBAL MARKETS INDIA PVT. LTD.

DSP MERRILL LYNCH LTD

FEDEX SECURITIES LTD

Ranking of Merchant Banking in India:

Merchant Banker OE FSS QPS QM INN

ICICI Securities 4.0 4.0 4.2 3.8 4.3

IDBI 4.2 3.2 4.5 4.0 4.8

SBI Caps 4.4. 3.9 4.6. 6.7 5.2

DPS 6.1 5.7 6.0 6.0 5.3

IFCI 6.1 5.7 6.0 6.0 6.3

Bank of Baroda 6.7 6.5 6.7 6.6 6.8

Jardine Fleming 5.8 6.2 5.9 5.0 5.5

JM Finance 6.0 6.5 5.5 5.9 5.4ENAM 6.3 6.8 6.4 6.3 6.2

PNB Caps 6.8 6.8 6.7 6.8 6.8

Note: OE: Overall Excellence; FSS: Financial Soundness; QPS: Quality Product/Service; QM:

Quality Management; INN: Innovativeness.

Registration of Merchant bankers with SEBI:

It is mandatory for a merchant banker to register with the SEBI. Without holding a certificate of

registration granted by the Securities and Exchange Board of India, no person can act as amerchant banker in India.

Only a body corporate other than a non-banking financial company shall be eligible to get

registration as merchant banker.

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The applicant should not carry on any business other than those connected with the

securities market.

All applicants for Merchant Bankers should have qualification in Finance, law or

Business Management.

The applicant should have infrastructure like office space, equipment, manpower etc.

The applicant must have at least two employees with prior experience in merchant

banking.

Any associate company, group company, subsidiary or interconnected company of the

applicant should not have been a registered merchant banker.

The applicant should not have been involved in any securities scamp or proved guilt for

any offence

The applicant should have a minimum net worth of Rs.5 Crore.

The various categories for which registration can be obtained are:

1) Category I to carry on the activity of issue management and to act as adviser,

consultant, manager, underwriter, portfolio manager.

2) Category II - to act as adviser, consultant, co-manager, underwriter, portfolio manager.

3) Category III - to act as underwriter, adviser or consultant to an issue.

4) Category IV to act only as adviser or consultant to an issue.

The capital requirement for carrying on activity as merchant banker:

The capital requirement depends upon the category. The minimum net worth requirement for

acting as merchant banker is given below:

1) Category I Rs.5 crores

2) Category II Rs,50 lakhs

3) Category III Rs.20 lakhs

4) Category IV Nil

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Procedure for getting registration:

An application should be submitted to SEBI in Form A of the SEBI (Merchant Bankers)

Regulations, 1992. SEBI shall consider the application and on being satisfied, issues a certificate

of registration in Form B of the SEBI (Merchant Bankers) Regulations, 1992.

Registration fee payable to SEBI:

Rs. 5 lakhs should be paid within 15 days of date of receipt of intimation regarding grant of

certificate. Validity period of certificate of registration is three years from the date of issue.

Three months before the expiry period, an application along with renewal fee of 2.5 lakhs should

be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations, 1992. SEBI shall

consider the application and on being satisfied renew certificate of registration for a further

period of 3 years.

Role of merchant banker in a primary market issue management:

Merchant banker is the intermediary appointed by companies in the primary market issue. It has

to look at the entire issue management and work as the Manager to the Public Issue. Principal

steps that Merchant bankers have to perform in a bringing up a Public issue are as follows:

1) Vetting of Prospects: The prospectus is a document to communicate information

about the company and the proposed security issue to the public. The draft prospectus

containing the disclosures has to be vetted by SEBI before a public issue is made.

2) Appointment of Underwriters: An underwriter agrees to subscribe to a given

number of shares in the event the public do not subscribe to them. The underwriter, in

essence, stands guarantee for public subscription in consideration for the underwriting

commission.

3) Appointment of bankers: The bankers to the issue collect money on behalf of the

company from the applicants.

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4) Appointment of Registrars: The registrars to issue perform a series of tasks from

the time the subscription is closed to the time the allotment is made.

5) Appointment of Brokers and Principal Brokers: The brokers to the issue facilitate

its subscription. Filing of the Prospectus with the Registrar of Companies

6) Printing and dispatch of prospectus and application form: After the prospectus is

filed with the Registrar of Companies, the company should print the prospectus and the

application form.

7) Filing of Initial Listing Application: Within ten days of filing the prospectus, the

initial listing application must be made to the concerned stock exchanges, along with the

initial listing fees.

8) Promotion of the Issue: The promotional campaign typically commences with the

filing of the prospectus with the Registrar of Companies and ends with the release of the

statutory announcement of the issue.

9) Statutory Announcement: The statutory announcement of the issue must be

made after seeking the approval of the lead stock exchange. This must be published at

least ten days before the opening of the subscription list.

10) Collection of Applications: The statutory announcement (as well as the

prospectus) specifies when the subscription would open when it would close, and the

banks where the applications can be made.

11) Processing of Applications: The application forms received by the bankers

are transmitted to the registrars to the issue for processing.

12) Establishing the Liability Underwriters: If the issue is undersubscribed, the

liability of the underwriters has to be established.

13) Allotment of Shares: If the issue is under-subscribed or just fully

subscribed, the company may allot shares applied for by the applicants after securing

the formal approval of the concerned stock exchanges(s)

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14) Listing of the Issue: The detailed listing application should be submitted to

the concerned stock exchanges along with the listing agreement and the listing fee.

15) Costs of Public Issue: The cost of public issue is normally between 8 and

12 per cent depending on the issue size.

Penalties Levied by SEBI on Merchant Bankers :

According to the notification, the penalty an enquiry officer can impose will be both minor and

major.

Among the minor penalties, the enquiry officer can issue warnings or censure,

prohibit the registration and suspension of certificate of registration.

Among the major penalties an enquiry officer can impose the cancellation of

certificate of registration and suspension of certificate of registration.

However, the regulations says that no order under these regulations shall be passed excepting

after holding an enquiry by an officer. To implement these regulations, SEBI has amended

regulations.

Procedure for Inspection:

The findings of the inspection report are communicated to merchant banker. SEBI may appoint a

qualified auditor to investigate in to the books of accounts or the affairs of merchant banker.

Penalties of Non compliance of conditions for registration and contravention of the provisions ofthe MB regulations include suspension or cancellation of registration. A penalty of suspension of

registration of a merchant banker may be imposed when:

The merchant banker violates the provisions of act, rules or regulations

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Fails to furnish any information relating to his activities as merchant banker as required

by the board.

Furnished wrong or false information

Does not submit periodical returns, as required by the board.

Does not cooperate in any enquiry conducted by the board.

The merchant banker fails to resolve the complaints of the investors or fails to

give satisfactory reply to the Board in this behalf.

The merchant banker indulges in manipulating or price rigging or concerning

activities.

The merchant banker is guilty of misconduct or improper or un business like or

unprofessional conduct which is not in co ordinance with the code of conduct

specified in the act.

The merchant banker fails to maintain the capital adequacy requirement in

accordance with the provisions of regulation.

The merchant banker fails to pay the fees.

The merchant banker violates the conditions of registration.

The merchant banker does not carry out his obligations as specified in the

regulation.

Defaults of The merchant banker and penalty points:

SEBI categorized defaults and the penalty points that they attract.

Defaults Penalty points

General Defaults 1

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Minor Defaults 2

Major Defaults 3

Serious Defaults 4

General Defaults:

For the purpose of penalty point, the following activities fall under general default and attract

one penalty point.

Non receipt of draft prospectus/letter of offer from the lead manager by SEBI,

before filing with registrar of companies/stock exchanges.

Non receipt of inter se allocation of responsibilities of lead managers in an issue

by SEBI prior to the opening of the issue.

Failure to ensure submission of certificate of minimum 90 % subscription to the

issue as required under Govt. of India.

Failure to ensure publicizing of dispatch of refund orders, shares/Debentures

certificates, filing of listing application by the issuer as required under Govt. of India

press notification.

Minor Defaults:

The following activities fall under minor default and attract two penalty points.

Advertisement, circular, broacher, press release and other issue related

materials not being in conformity with contents of the prospects.

Exaggerated information or Information extraneous to the prospectus is given by

the associated parties

Failure to substantiate matters contained in highlights to the issue in the

prospectus. Violation of the Govt. of India letter regarding advertisements on new

capital issues.

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Failure to exercise due diligence in verifying contents of prospectus/ letter of offer

Failure to provide adequate and fair disclosure to investors and objective

information about risk factors in the prospectus and other issue literature

Delay in refund/allotment of securities.

Non-handling of investor grievances promptly.

Major defaults:

The following activities fall under major default and attract three penalty points.

Mandatory underwriting not taken up by lead manager

Excess number of lead managers than permissible under SEBI

Association of unauthorized merchant banker in an Issue.

Serious Defaults:

The following activities fall under serious default and attract four penalty points.

Unethical practice by merchant banker and/or violation of code of conduct.

Non cooperation with SEBI in furnishing desired information documents,

evidence as may be called for.

A merchant banker on reaching the penalty points of eight attracts action from SEBI in

terms of suspension/ cancellation of authorization.

To enable a merchant banker to take corrective action maximum penalty points awarded

in a single issue managed by a merchant banker are restricted to four.

Code of conduct For Merchant banker:

A Merchant Banker shall make all efforts to protect the interests of investors.

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A Merchant Banker shall maintain high standards of integrity, dignity and fairness in the

conduct of its business.

A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional

manner.

A Merchant Banker shall at all times exercise due diligence, ensure proper care and

exercise independent professional judgment.

Where a complaint is not remedied promptly, the investor is advised of any further steps

which may be available to the investor under the regulatory system.

A Merchant Banker shall not discriminate amongst its clients, save and except on ethical

and commercial considerations. Merchant Banker shall avoid conflict of interest and make adequate disclosure of its

interest.

Merchant Banker shall always endeavor to render the best possible advice to the clients

having regard to their needs.

A Merchant Banker shall maintain arms length relationship between its merchant banking

activity and any other activity.

A Merchant Banker shall not make untrue statement or suppress any material fact in any

documents, reports or information furnished to the Board.

A Merchant Banker shall demarcate the responsibilities of the various intermediaries

appointed by it clearly so as to avoid any conflict or confusion in their job description.

A Merchant Banker shall provide adequate freedom and powers to its compliance officer

for the effective discharge of the compliance officers duties.

A Merchant Banker shall ensure that good corporate policies and corporate governance

are in place.

A Merchant Banker shall be responsible for the acts or omissions of its employees and

agents in respect of the conduct of its business.

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A Merchant Banker shall ensure that the senior management, particularly decision

makers have access to all relevant information about the business on a

timely basis.

Comparison between Bangladesh & India:

CHAPTER 1:

INITIALS

Act means the Securities and Exchange Commission of Bangladesh Act, 1987

Who is Merchant Banker?

Merchant banker means any company who is certified under Merchant Banker &

Portfolio Manager Regulation,1996 and can perform the following activities as-

merchant banker means any person who is engaged in the business of issue management

either by making arrangements regarding selling, buying or subscribing to securities or

acting as manager, consultant, adviser or rendering corporate advisory service in relation to

such issue management.

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Who is a Portfolio Manager?

Any person who provide advice or act as a manager on behalf of his client regarding

securities and fund management

Managing Own Portfolio

Advising Clients

Managing Clients Portfolio

Number of Merchant Banks in Bangladesh

CHAPTER II

REGISTRATION OF MERCHANT BANKERS

Qualifications of Merchant Banker and Portfolio

Manager

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No person shall be allowed to work as a merchant banker & portfolio

manager without having the registration certificate under this regulation

from the commission

For acting as a merchant banker it should be a company, statutory

organization or any institution permitted by SEC. Those who are operating

other than such form of organization before this amendment - need to be

converted in to company within 6 months after such notification( added June

16 2008)

Stock dealer, stock broker, asset management company of mutual fund or

trustee

If more than 50% of the applicant companys board of directors are already in

the board of its subsidiary company or parent company.

Registration of Merchant Banker & Portfolio

Manager

In Bangladesh:

Application for Grant of Certificate

Merchant Banker has to apply on Form A

Portfolio Manager has to apply on Form C

Brief review of the Application for Merchant Banker

& Portfolio Manager Registration Certificate ( form A &C)

Applicants Name & Address

Organization Structure

Business Information

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Experiences in Issue Management, Underwriting, Corporate Advising,Portfolio Management

Client information

Financial information

Capital structure

Assets

Major Sources of Income

List of majorshareholders

Name and address of the principal bankers

Name and address of the auditors

Consideration of Application

The Commission shall consider the following requirements :

Applicants business location, office etc.

Manpower and Experience

Capital Adequacy

Bank borrowing, involvement in any litigation connected with the securitiesmarket, conviction for any offence involving moral turpitude

Can not use Merchant Banker or Merchant Bank or Investment Bank as partof the name

Disqualifications for Merchant Banker or Portfolio Manager :

Any stock dealer or broker

Any asset manager, trustee or custodial of a mutual fund

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In INDIA:

Application for grant of certificate.


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sub-regulation (1) of regulation 3

CAPITAL ADEQUECY REQUIREMENT IN

BANGLADESH

31

(1) An application by a person for grant of a certificate shall be made to the Boardin Form A.

7An application for registration made under sub-regulation (1) shall beaccompanied by a non-refundable application fee as specified in Schedule II.]

* The application under sub-regulation (1) shall be made for any one of thefollowing categories of the merchant banker namely:

(a) Category I, that is

(i) to carry on any activity of the issue management, which will, inter alia,consist of preparation of prospectus and other information relating to theissue, determining financial structure, tie up of financiers and final allotmentand refund of the subscriptions; and

(ii) to act as adviser, consultant, manager, underwriter, portfolio manager;

(b) Category II, that is to act as adviser, consultant, co-manager, underwriter,portfolio manager;

(c) Category III, that is to act as underwriter, adviser, consultant to an issue;

(d) Category IV, that is to act only as adviser or consultant to an issue.8*Notwithstanding anything contained in this regulation, with effect from 9th

December, 1997:

(i) an application under sub-regulation (2) can be made only for carrying on theactivities mentioned in clause (a) therein, and

opportunity to remove within the time specified such objections as may be indicated

(iii) an applicant can carry on the activity as portfolio manager only if he obtainsseparate certificate of registration under the provisions of the Securities andExchange Board of India (Portfolio Manager) Regulations, 1993.]

(3) Notwithstanding anything contained in sub-regulation (1) any application made bya merchant banker prior to coming into force of these regulations containing such

particulars or as near thereto as mentioned in Form A shall be treated as anapplication made in pursuance of sub-regulation (1) and dealt with accordingly.

Application to conform to the requirements.

4. Subject to the provisions of sub-regulation (3) of regulation 3, any application,which is not complete in all respects and does not conform to the instructionsspecified in the form shall be rejected :

registration by the Board Provided that, before rejecting any such application, the applicant

shall be given an

by the Boa

Furnishing of information, clarification and personal representation.

5. (1) The Board may require the applicant to furnish further information or

clarification regarding matters relevant to the activity of a merchant banker for thepurpose of disposal of the application.

(2) The applicant or its principal officer shall, if so required, appear before the Boardfor personal representation.

Consideration of application.

6. The Board shall take into account for considering the grant of a certificate, allmatters which are relevant to the activities relating to merchant banker and inparticular the applicant complies with the following requirements, namely :10

[(a) the applicant shall be a body corporate other than a non-banking financialcompany as defined under clause (f) of section 45-I of the Reserve Bank of

India Act, 1934 (2 of 1934), as amended from time to time :11[Provided that the merchant banker who has been granted registration by the

Reserve Bank of India to act as a primary or satellite dealer may carry on suchactivity subject to the condition that it shall not accept or hold public deposit;]

12[(aa)]the applicant has the necessary infrastructure like adequate office space,

equipments, and manpower to effectively discharge his activities;

(b) the applicant has in his employment minimum of two persons who have theexperience to conduct the business of merchant banker;

(c) a person directly or indirectly connected with the applicant has not been granted

Explanation : For the purposes of this clause the expression directly orindirectly connected means any person being an associate, subsidiary or inter-connected or group company of the applicant in case of the applicant being abody corporate;

(d) the applicant fulfils the capital adequacy requirement specified in regulation 7;

(e) the applicant, his partner, director or principal officer is not involved in anylitigation connected with the securities market which has an adverse bearing onthe business of the applicant;

(f) the applicant, his director, partner or principal officer has not at any time beenconvicted for any offence involving moral turpitude or has been found guilty ofany economic offence;

(g) the applicant has the professional qualification from an institution recognised bythe Government in finance, law or business management;

13[(gg) the applicant is a fit and proper person;]

(h) grant of certificate to the applicant is in the interest of investors.14

[Criteria for fit and proper person.

6A. For the purpose of determining whether an applicant or the merchant banker is afit and proper person the Board may take into account the criteria specified inSchedule II of the Securities and Exchange Board of India (Intermediaries)Regulations, 2008.]15

[Capital adequacy requirement.

7. The capital adequacy requirement referred to in clause (d) of regulation 6 shall bea net worth of not less than five crore rupees.

Explanation: For the purposes of this regulation, net worth means the sum of paid-up capital and free reserves of the applicant at the time of making application under


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Capital Adequacy Requirement( Added June 16 2008)

Applicant for Merchant Banker need to have Paid up capital of 100 million &

Portfolio Manager need to have 50 million, NAV shall

be 50% of paid up capital. But if applicant is interested -

In issue management except underwriting then paid up capital shall be 10million

In underwriting then paid up capital shall be 50 million

Portfolio management, issue management & underwriting then paid upcapital shall be 100 million

Issue manager need to maintain this within 1 year after this notification

Paid up capital need to be 30 million within 1 year and 50 million within 2 year after

this notification

Paid up capital

need to be 6o million within 1 year and 100 million within 2 year after this

notification

The Finance Minister said the government has taken an initiative to increase the

merchant banks' paid-up capital to boost the fund flow in the troubled stock market,

which is now facing liquidity crunch. ( The Financial Express, 19th Feb, 2011)

CAPITAL ADEQUECY REQUIREMENT IN INDIA:

a net worth of not less than five crore rupees.

procedure for registration.

On the grant of a certificate the applicant shall be liable to pay the fees

in

32

(4) On the grant of a certificate the applicant shall be liable to pay the fees

procedure for registration. The Board, on being satisfied that the applicant is eligible, shall

grant a

The capital adequacy requirement referred to in clause (d) of regulation 6 shall be

The Board, on being satisfied that the applicant is eligible, shall grant acertificate in Form B

16[* * *].

19[* * *] inaccordance with Schedule II.

For the purposes of this regulation, net worth means the sum of paid-up capital and free reserves of the applicant at the time of making application under

certificate in Form B


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The Board, on being satisfied that the applicant is eligible, shall grant a

certificate in Form B

Fees and Charges for Certificate in Bangladesh

Fees and Charges for Certificate in India:

1)merchant banker for the period during which the suspension subsists

Every applicant eligible for grant of a certificate shall pay such fees in such

manner and within the period specified in Schedule II.

* Where a merchant banker fails to pay the annual fees as provided in sub-

regulation (1), read with Schedule II, the Board may suspend the registration

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accordance with Schedule II


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certificate, whereupon the merchant banker shall cease to carry on any activity as a

Maintenance of books of account, records etc in BANGLADESH by PORTFOLIO

MANAGER:

Every Portfolio manager has to maintain the following A/C books,record and documents for every accounting period. These are:

A. B/S

B. P/L A/C

C. Cash flow statement

D. Auditors report

E. Acceptance of commission assigned A/C statement

Every Portfolio manager has to inform the commission about wherethe A/C books, record and documents are kept.

All books of A/C, records and documents under the rules have toreserve for 12 years.

Portfolio Manager must have a contract with client.

The contract includes:

Objective of investment and permissible services

Investment arena

Any objection by client for investing in certain industry

Risk inherent in Portfolio Management

Contracts duration and subject related to cancelation before the

expiry of contract

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Investable sum of money

Rules regarding settlement of clients account

Fees payable to Portfolio Manager

Safety of securities

Name of the scheduled bank in which fund is kept for the

purpose of portfolio management

Portfolio manager cant claim any portion of investments return

Only a fee for management of clients fund

Maintenance of books of account, records etc in INDIA:

Every merchant banker shall keep and maintain the following books of

accounts ,records and documents namely :

(a) a copy of balance sheet as at the end of the each accounting period;

(b) a copy of profit and loss account for that period

(c) a copy of the auditors report on the accounts for that period

(d) a statement of financial position.

*Every merchant banker shall intimate to the Board the place where the books of account,

records and documents are maintained

* Without prejudice to sub-regulation (1), every merchant banker shall, after the

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;

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end of each accounting period furnish to the Board copies of the balance sheet

profit and loss account and such other documents for any other preceding five

accounting years when required by the Board

RESPONSIBILITIES OF MERCHANT BANKERS IN BANGLADESH:

Every merchant banker has to maintain the following books of account every year :

Balance Sheet

Profit and Loss Account

Cash Flow Statement

Auditors Report

Books of Account specified by the commission

Books of account and documents must be preserved for at least 12 years

Must submit books of account to the commission at the end of each accountingperiod

Submission of Information

Any change in the previously submitted information

Names of the companys issues that he managed or companys issues with which hewas related

Any deviation in capital adequacy

Quarterly Unaudited report

Books of account must be audited and remove any deficiency with in 60 days afterreceiving the auditors report

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Restriction on Share Acquisition

Must not enter into any transaction of securities on the basis of unpublished pricesensitive information obtained during the course of any professional assignment

No merchant banker, or any of its director, partner or manager or principalofficer shall either on their respective accounts or through their associates orrelatives enter into any transaction of securities on the basis of unpublishedprice sensitive information during the course of any professional assignment.

Any officer appointed by the merchant banker and portfolio manager shallnot be the officer of mutual fund, stock dealer or stock broker

RESPONSIBILITIES OF MERCHANT BANKERS IN INDIA:

Every merchant banker shall abide by the Code of Conduct as specified in schedule 3

No merchant banker, other than a Bank or a [***]Public Financial Institution, who has been

granted a certificate of registration under these regulations shall carry on any business

other than that in the securities market Notwithstanding anything contained above, a

merchant banker who prior to the date of notification of the Securities and Exchange Board

of India (Merchant Bankers) other than that of the securities market may, if he so desires,

discharge his obligations under such contract

Provided that a merchant banker who has been granted certificate of registration

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(c) a statement of financial position.


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to act as primary or satellite dealer by Reserve

Bank of India, may carry on such business as may be

permitted

by the Reserve Bank of India

Provided further that a merchant banker, who has been granted certificate of

registration under these

regulations, may

ensure market making in accordance with

Chapter XA of the Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009]

subsidiary or holding company and the merchant banker.

38

(1)Every merchant banker shall keep and maintain the following books ofaccount, records and documents namely :

(a) a copy of balance sheet as at the end of the each accounting period;(b) a copy of profit and loss account for that period;

(2) Every merchant banker shall intimate to the Board the place where the books ofaccount, records and documents are maintained.

(3) Without prejudice to sub-regulation (1), every merchant banker shall, after theend of each accounting period furnish to the Board copies of the balance sheet,profit and loss account and such other documents for any other preceding fiveaccounting years when required by the Board.

Submission of half-yearly results.

15. Every merchant banker shall furnish to the Board half-yearly unaudited financialresults when required by the Board with a view to monitor the capital adequacy ofthe merchant banker.

Maintenance of books of account, records and other documents.

16. The merchant banker shall preserve the books of account and other records anddocuments maintained under regulation 14 for a minimum period of five years.

Report on steps taken on auditors report.

17. Every merchant banker shall, within two months from the date of the auditorsreport, take steps to rectify the deficiencies made out in the auditors report.

Responsibilities of lead managers.

20. (1) No lead manager shall agree to manage or be associated with any issueunless his responsibilities relating to issue mainly, those of disclosures, allotmentand refund are clearly defined, allocated and determined and a statement specifyingsuch responsibilities is furnished to the Board at least one month before the opening

of the issue for subscription:Provided that, where there are more than one lead merchant bankers to the issuethe responsibilities of each of such lead merchant bankers shall clearly bedemarcated and a statement specifying such responsibilities shall be furnished tothe Board at least one month before the opening of the issue for subscription.

Lead merchant banker not to associate with a merchant banker withoutregistration.

21. A lead merchant banker shall not be associated with any issue if a merchantbanker who is not holding a certificate is associated with the issue.37

[Merchant banker not to act as such for an associate.

21A. (1) A merchant banker shall not lead manage any issue or be associated withany activity undertaken under any regulations made by the Board, if he is a promoteror a director or an associate of the issuer of securities or of any person making anoffer to sell or purchase securities in terms of any regulations made by the Board:

Provided that a merchant banker who is an associate of such issuer or person maybe appointed, if he is involved only in the marketing of the issue or offer.

Explanation: For the purposes of this regulation, a merchant banker shall be deemedto be an associate of the issuer or person if:

(i) either of them controls, directly or indirectly through its subsidiary or holdingcompany, not less than fifteen per cent. of the voting rights in the other; or

(ii) either of them, directly or indirectly, by itself or in combination with other

persons, exercises control over the other; or(iii) there is a common director, excluding nominee director, amongst the issuer, its


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Obligations.

No merchant banker or any of its directors, partner or manager or principal

officer shall either on their respective accounts or through their associates or relatives, enter

into any transaction in securities of bodies corporate on the basis of unpublished price

sensitive information obtained by them during the course of any professional assignment

either from the clients or otherwise.

Action in Case of Default (Both in India and Bangladesh)

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Fig: Action in Case of Default

Chapter 3, 4,5:Role of Merchant bankers,

Portfolio manager registration certificate

and his responsibilities

Role of merchant banker in a primary market issue management:

Merchant banker is the intermediary appointed by companies in the primary market issue. It has

to look at the entire issue management and work as the Manager to the Public Issue. Principal

steps that Merchant bankers have to perform in a bringing up a Public issue are as follows:

16) Vetting of Prospects: The prospectus is a document to communicate

information about the company and the proposed security issue to the public. The

draft prospectus containing the disclosures has to be vetted by SEBI before a public issue

is made.

17) Appointment of Underwriters: An underwriter agrees to subscribe to a

given number of shares in the event the public do not subscribe to them. The

underwriter, in essence, stands guarantee for public subscription in consideration for the

underwriting commission.

18) Appointment of bankers: The bankers to the issue collect money on behalf

of the company from the applicants.

19) Appointment of Registrars: The registrars to issue perform a series of

tasks from the time the subscription is closed to the time the allotment is made.

20) Appointment of Brokers and Principal Brokers: The brokers to the issue

facilitate its subscription. Filing of the Prospectus with the Registrar of Companies

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21) Printing and dispatch of prospectus and application form: After the

prospectus is filed with the Registrar of Companies, the company should print the

prospectus and the application form.

22) Filing of Initial Listing Application: Within ten days of filing the prospectus,

the initial listing application must be made to the concerned stock exchanges, along with

the initial listing fees.

23) Promotion of the Issue: The promotional campaign typically commences

with the filing of the prospectus with the Registrar of Companies and ends with the

release of the statutory announcement of the issue.

24) Statutory Announcement: The statutory announcement of the issue must

be made after seeking the approval of the lead stock exchange. This must be published

at least ten days before the opening of the subscription list.

25) Collection of Applications: The statutory announcement (as well as the

prospectus) specifies when the subscription would open when it would close, and the

banks where the applications can be made.

26) Processing of Applications: The application forms received by the bankers

are transmitted to the registrars to the issue for processing.

27) Establishing the Liability Underwriters: If the issue is undersubscribed, the

liability of the underwriters has to be established.

28) Allotment of Shares: If the issue is under-subscribed or just fully

subscribed, the company may allot shares applied for by the applicants after securing

the formal approval of the concerned stock exchanges(s)

29) Listing of the Issue: The detailed listing application should be submitted to

the concerned stock exchanges along with the listing agreement and the listing fee.

30) Costs of Public Issue: The cost of public issue is normally between 8 and

12 per cent depending on the issue size.

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Penalties Levied by SEBI on Merchant Bankers :

According to the notification, the penalty an enquiry officer can impose will be both minor and

major.

Among the minor penalties, the enquiry officer can issue warnings or censure,

prohibit the registration and suspension of certificate of registration.

Among the major penalties an enquiry officer can impose the cancellation of

certificate of registration and suspension of certificate of registration.

However, the regulations says that no order under these regulations shall be passed excepting

after holding an enquiry by an officer. To implement these regulations, SEBI has amendedregulations.

Qualifications of Merchant Banker and Portfolio Manager:

No person shall be allowed to work as a merchant banker & portfolio manager without

having the registration certificate under this regulation from the commission

For acting as a merchant banker it should be a company, statutory organization or any

institution permitted by SEC. Those who are operating other than such form of

organization before this amendment - need to be converted in to company within 6

months after such notification( added June 16 2008)

Stock dealer, stock broker, asset management company of mutual fund or trustee

If more than 50% of the applicant companys board of directors is already in the board of its

subsidiary company or parent company.

Margin Loan

Currently the Commission directs credit facilities on 1:1 basis. (effected

from July 11, 2010.)

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The PM/MB shall keep clients' funds separate from his own funds and

securities and be responsible for safekeeping of clients' funds and

securities.

PM/MB will close the accounts of its clients within at least 7 days of any

notice from its clients. After the closure of accounts ,if there is anyreceipts (dividend, right or bonus) or payments due, PM/MB then will

prepare a Suspense Account on behalf of its client.

PM/MB shall calculate the Market Value of Portfolio/Securities to

determine margin requirements by using the following formula-

PM/MB will close the accounts of its clients within at least 7 days of any

notice from its clients. After the closure of accounts ,if there is any

receipts (dividend, right or bonus) or payments due, PM/MB then will

prepare a Suspense Account on behalf of its client.

PM/MB will maintain a General provision of 1% on total arrears to

ensure safety against volatility of capital market

Chapter Six

Inspection

Chapter Six of the Securities and Exchange Commission Regulations, 1996 of Bangladesh deals

with the inspection of the books of accounts, records and documents of the merchant banker and

portfolio manager. The commission may appoint one or more person as inspection authority.

This chapter is quite similar with the Securities and Exchange Board of India (Merchant

Bankers) Regulations, 1992 and the Securities and Exchange Board of India (portfolio Manager)

Regulations, 1993.

Similarities:

Both the Bangladesh and Indias regulations require the inspection authority to

investigate the complains of investors, other merchant banker and portfolio manager.

A notice may be given by the commission or board for such notice.

The merchant banker shall allow the inspecting authority to have reasonable access to thepremises occupied by such merchant banker or by any other person on his behalf and also

extend reasonable facility for examining any books, records, documents and computer data inthe possession of the merchant banker or any such other person and also provide copies of

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documents or other materials which, in the opinion of the inspecting authority, are relevantfor the purposes of the inspection.

The inspecting authority, in the course of inspection, shall be entitled to examine or record

statement of any principal officer, director, partner, proprietor and employee of the merchantbanker.

It shall be the duty of every director, proprietor, partner, officer or employee of the merchant

banker and portfolio manager to give to the inspecting authority all assistance in connectionwith inspection which the merchant banker may reasonably be expected to give.

The inspecting authority shall, submit, an inspection report to the Commission or Board.

The Commission/Board or the Chairman shall after consideration of inspection or

investigation report take such action as the Board or Chairman may deem fit and appropriate.

Dissimilarities:

The regulations of Bangladesh requires that, the inspector(s) shall give a notice of at least 3(three) days or less as permitted by the Commission. But according to the Board of India, the

inspection

The regulations of Bangladesh require that, the inspection report should be submitted to theCommission within 60 (sixty) days from the beginning of the inspection but Indian

regulations do not mention any such certain time. The regulations of Bangladesh alsorequires that the Commission, within 30 (thirty) days of receiving the inspection report, if

the merchant banker or portfolio manager is proved as a guilt, can make the certificate invalidor suspend it.

Chapter Seven

Suspension and Canccellation of Cetificate

In this chapter different activities which cause the certificate of the merchant banker or

portfolio manager suspended or cancelled are discussed. The comparison between the

regulations of India and Bangladesh is mentioned below:

Similarities:

Suspension or cancellation may occur if the merchant banker or portfolio manager do any ofthe following:

Violate any provision under this act

Fail to provide any information required by the SEC

Furnish wrong or false information to the SEC

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Do not co-operate with the enquiry officer sent by SEC

Fail to pay the fees

Dont follow Code of Conduct

Fail to perform its own responsibility.

Act against investors interest

Are punished by any court for moral turpitude

But the merchant banker or portfolio manager should be given the opportunity of being heard

or holding an enquiry to investigate properly. The merchant banker or portfolio manager mayappeal to re-consider the order within a certain time period if they are unsatisfied.

Chapter EightCode of Conduct

The chapter named Code of Conduct discusses the manner to which the merchant banker

and portfolio manager should act. The code of conduct for merchant banker and portfolio

manager of India is dicussed in Schedule Three of Chapter Five in the Securities and

Exchange Board Regulations.The comparison is given below:

Similarities:The regulations of India and Bangladesh are almost same.

A merchant banker and portfolio manager shall make all efforts to protect theinterests of investors.

A merchant banker and portfolio manager shall maintain high standards of integrity,

dignity and fairness in the conduct of its business.

A merchant banker and portfolio manager shall fulfil its obligations in a prompt,ethical, and professional manner.

A merchant banker and portfolio manager shall at all times exercise due diligence,

ensure proper care and exercise independent professional judgment.

A merchant banker and portfolio manager shall endeavour to ensure that

a) inquiries from investors are adequately dealt with;

b) grievances of investors are redressed in a timely and appropriate manner;

c) where a complaint is not remedied promptly, the investor is advised of any

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further steps which may be available to the investor under the regulatorysystem.

Dissimilarities:

The regulations of India regarding Merchant Banker and Portfolio Manager are quite vast than ofBangladesh. In Chapter Eight of Srcurities and Exchange Commission (Merchant Banker and

Portfolio Manager) Regulations, 1996 the rules regarding margin loan is dicussed.

The merchant banker (portfolio manager) has to open a margin account for the client which

can be either

Individual Account

Joint account

Every Account whether it is Individual Account or Joint Account it can be two types in nature ofControl

Discretionary

Client gives all the authority to buy and sell securities on his behalf Non- Discretionary

Client buy and sell securities according to his will

All risks in a Margin Loan Account are solely run by the clients. Merchant Banker / PortfolioManager cannot give any privilege to its Board of Directors, Officers, their relatives or any other

relatives to use margin loan as directed by the commission time to time.

Marginable Securities

Listed Common Stock

Listed Corporate bond and debenture

Open end and listed closed end mutual fund Government Security

Any Security set by the SEC

Considerations

Securities Fundamental

Liquidity

Risk Factors

Capital Appreciation

Safety

The merchant banker (portfolio manager) will provide margin loan as per the rate determined by the

SEC time to time

SEC Directive to merchant bankers related to single client exposure limit-

Single client exposure limit is taka 10 crore 22 July 2010

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No merchant banker (portfolio manager) is allowed to provide margin loan to any ofits director, their spouse or any person dependent on them

Directive to merchant banks related to marginable shares' PE ratio-

Must not provide further margin loan to purchase the equity securities with price-

earning ratio of above 40 (15 June 2010)

All corporate benefit, such as dividend, bonus, rights etc. entitled according to bookclosure/record date will be added with portfolio value.

Merchant Banker / Portfolio Manager can adopt their own policy to secure their own and

clients portfolio in a Discretionary account by diversification.

Merchant Banker / Portfolio Manager can follow their own policy in requirement of

Maintenance Margin until otherwise the commission imposes any direction to them.

Merchant Banker and Portfolio Manager will act as a custodian of securities in a MarginLoan Account. Securities purchased or deposited by clients will be kept either in Omnibus or

Individual account.

Merchant Banker and Portfolio Manager can not use securities of clients margin accountfor availing loan or other benefits.

Merchant Banker / Portfolio Manager can keep 1% of total arrears in an accounting year to

safeguard against the volatility in the capital market.

Merchant Banker / Portfolio Manager have to submit information regarding Margin Loan

within the time and format directed by the commission.

CONCLUSION

The merchant bankers are those financial intermediaries involved with the activity of transferring capital

funds to those borrowers who are interested in borrowing. They guarantee the success of issues byunderwriting them. Merchant Banks are popularly known as issuing and accepting houses

Bangladesh and India, both are almost same In the Rule of Merchant Banking and portfolio management.

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The central bank of Bangladesh asked the commercial banks to run their merchant banking business

through separately formed subsidiary companies, officials and bankers

In india,Merchant banking activities is of course organized and undertaken in several forms. Commercial

banks and foreign development finance institutions have organized them through formation divisions,

nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted

themselves into public limited companies or registered themselves as private limited Companies

REFERENCES:

1. Our class lectures

2. Journals

3. Our text book

4. Internet

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THANK YOUTHANK YOU

SAK Final Report

Documents

Transcript of SAK Final Report