Merchant Bankers Regulations

Securities Exchange Board of India
(Merchant Bankers) Regulations, 1992

Prepared By:
Amar Ranu (905)
Deepak Thakkar (909)
Kumar Dhananjay Rakesh (917)
Shakti Shatpathy (930)
Under Guidance of :
Prof. Dr. Rachana Baid
Indian Institute of Capital Markets

Contents
Introduction

Registration

Obligations &
Responsibilities

Procedure for
Inspection

Procedure for Action
incase of Default

(Merchant Bankers) Regulations, 1992 Introduction
Origination of Merchant Bankers in India
Introduction
Nature of Merchant Banking
Registration
Merchant Banker’s Core Business Portfolio
Obligations &
Responsibilities Need for Regulation

Procedure for Definition
Inspection

incase of Default

Origination of Merchant Bankers in India
Introduction
 Merchant banking activity was formally initiated into the Indian
capital Markets in 1967.
Registration
 Started with various services like management of capital issues,
Obligations & production planning and system design to market research and
management consulting services to meet the requirements of small
Responsibilities and medium sector rather than large sector.
Procedure for
 Citibank Setup its merchant banking division in 1970. The various
Inspection
tasks performed by this divisions namely assisting new entrepreneur,
evaluating new projects, raising funds through borrowing and issuing
Procedure for Action equity.
incase of Default
 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.

Nature of Merchant Banking
Introduction
 The services of merchant bank cover project counseling, pre
investment activities, feasibility studies, project reports, design of
Registration capital structure, issue management, underwriting, loan syndication,
mobilization of funds, foreign currency finance, mergers,
Obligations & amalgamation, takeover, venture capital and public deposits.
Responsibilities
 Merchant banking is skill based activities and involves serving
Procedure for financial need of every client.
Inspection
 The depth and sophistication in merchant banking business are
improving since the avenues for raising funds are widening and
demands for funds is increasing.
incase of Default
 Merchant bankers can turn to any of the activities depending upon
resources, such as capital, foreign tie-ups for overseas activities and
skills.

Merchant Banker’s Core Business Portfolio
Introduction Core Business Portfolio

Registration
Non-fund Based Fund Based
 Merchant Banking Services for Underwriting
Obligations & Management of public offers of equity
Responsibilities and debt instruments Market Making

 Right issues Bought out deals
Procedure for Proprietary investment and trading in
 Open offer under the takeover code
Inspection equities, bonds and derivatives.
 Buyback offers

Procedure for Action Advisory and Transaction services in
incase of Default  Project financing

 Syndicated loans

 Private Equity/Venture capital

 Business Advisory

 Financial Restructuring

 Corporate re-organisations such as
mergers and demergers, hive-offs, asset
sales, divestitures
 Acquisition, strategic sale, buyouts and
takeovers

Need for Regulation
Introduction

Registration  The merchant banker's regulations, which regulate the raising of
funds in the primary market, would assure for the issuer market for
Obligations & raising resources at low cost, effectively and easily, ensure high
Responsibilities degree of protection of investors interest.

Procedure for  The regulations provide for the merchant bankers a dynamic and
Inspection competitive market with the high standard of professional
competence, dignity, integrity and solvency.
The regulations promote a primary market, which is fair, efficient,
incase of Default
and flexible, and inspire confidence.

Definition
Introduction

Registration

Obligations & quot;Any person who is engaged in the business of issue management
Responsibilities either by making arrangements regarding selling, buying or
subscribing to securities has manager, consultant, advisor or
Procedure for rendering corporate advisory services in relation to such issue
Inspection managementquot;.

incase of Default

(Merchant Bankers) Regulations, 1992 Registration of Merchant Bankers
Categories of the Merchant Bankers
Introduction
Requirements for Granting of Certificate
Registration
Capital Adequacy Requirement
Obligations &
Responsibilities Procedure for Registration

Procedure for Renewal of Certificate
Inspection

incase of Default

Categories of Merchant Bankers
Introduction
(a) Category I
 to carry on any activity of the issue management, which will inter-
Registration
alia consist of preparation of prospectus and other information
relating to the issue, determining financial structure, tie-up of
Obligations & financiers and final allotment and refund of the subscription; and
Responsibilities  to act as adviser, consultant, manager, underwriter, portfolio
manager.
Procedure for
Inspection (b) Category II
To act as adviser, consultant, co-manager, underwriter, portfolio
Procedure for Action manager
incase of Default
(c) Category III
To act as underwriter, adviser, consultant to an issue

(d) Category IV
To act only as adviser or consultant to an issue.

Requirements for Granting of Certificate
Introduction The Applicant . . . .

Registration  shall be a body corporate other than a NBFC

 has the necessary infrastructure to effectively discharge his
Obligations & activities.
Responsibilities
 Should have minimum two experienced employees to conduct the
Procedure for business of the merchant banker.
Inspection  Should fulfill the capital adequacy requirement as specified.

Procedure for Action  his partner, director or principal officer should not be involved in any
incase of Default litigation connected with the securities market which has an adverse
bearing on the business of the applicant.

 his partner, director or principal officer has not at any time been
convicted for any offence involving moral turpitude or has been
found guilty of any economic offence.

 Should have the professional qualification from an institution
recognized by the Government in finance, law or business
management.

 Should be a fit and proper person.

Capital Adequacy Requirements
Introduction
 The Capital Adequacy Requirement(CAR) shall not be less than the
net worth of the person making the application for grant of
Registration registration.

Obligations &  The net worth shall be as follows, namely: -
Category Minimum Amount
Responsibilities
1) Category I Rs. 5, 00, 00, 000
Procedure for 2) Category II Rs. 50, 00, 000
3) Category III Rs. 20, 00, 000
Inspection
4) Category IV Nil
Procedure for Action  Explanation:
incase of Default For the purposes of this regulation quot;net worthquot; means in the case of
an applicant which is a partnership firm or a body corporate, the
value of the capital contributed to the business of such firm or the
paid up capital of such body corporate plus free reserves as the
case may be at the time of making application.

Procedure for Registration
Introduction
 The SEBI on being satisfied that the applicant is eligible shall grant a
certificate in Form B.
Registration
 On the grant of a certificate the applicant shall be liable to pay the
Obligations & fees in accordance with Schedule II as shown below:
Responsibilities
Procedure for Registration Fees
Inspection Merchant Initial Fees for 2 Continuation
Banker Yrs Fees
Procedure for Action Category I Rs. 2.5 Lakhs Rs. 1 Lakh
incase of Default Category II Rs. 1 Lakh Rs. 50,000
Category III Rs. 1 Lakh Rs. 25,000
Category IV Rs. 5000 Rs. 1000

Renewal of Certificate
Introduction
 Three months before expiry of the period of certificate, the
merchant banker, may if he so desires, make an application for
Registration renewal in Form A.

 The application for renewal shall be dealt within the same manner
Obligations & as if it were a fresh application for grant of a certificate.
Responsibilities
 The SEBI on being satisfied that the applicant is eligible for
Procedure for renewal of certificate shall grant a certificate in Form B and send
Inspection intimation to the applicant.

Procedure for Action  On the grant of a certificate the applicant shall be liable to pay the
incase of Default fees in accordance with Schedule II as shown below:

Renewal Fees
Merchant Initial Fees for 2 Continuation
Banker Yrs Fees
Category I Rs. 1 Lakh Rs. 20,000
Category II Rs. 75,000 Rs. 10,000
Category III Rs. 50,000 Rs. 5,000
Category IV Rs. 5000 Rs. 2500

Securities Exchange Board of india
(Merchant Bankers) Regulations, 1992 Obligations & Responsibilities
Code of Conduct
Introduction
Maintenance of Books of Accounts, Records, etc.
Registration
Submission of Half Yearly Results
Obligations &
Responsibilities Appointment of Lead Merchant Bankers & Restrictions

Procedure for Responsibilities of Lead Managers
Inspection
Underwriting Obligations
incase of Default Appointment of Compliance Officers

Code of conduct
Introduction
 Every merchant banker shall abide by the Code of Conduct
as specified in Schedule III.
Registration
 No merchant banker, other than a bank or a public
Obligations & financial institution, who has been granted a certificate of
Responsibilities registration under these regulations shall after June 30th,
1998 carry on any business other than that in the
Procedure for
securities market.
Inspection

Procedure for Action  A merchant banker who has been granted certificate of
incase of Default registration to act as primary dealer by Reserve Bank of
India, may carry on such business as may be permitted by
Reserve Bank of India.

Maintenance of Books of Accounts, Records, etc.
Introduction
 Every merchant banker shall keep and maintain the
Registration following books of accounts, records and documents
namely:-
Obligations & (a) a copy of balance sheet and P&L account as at the end
Responsibilities of each accounting period;
(b) a copy of the auditor's report on the accounts for that
Procedure for period; and
Inspection (c) a statement of financial position.

Procedure for Action  Every merchant banker shall intimate to the SEBI the place
incase of Default where the books of accounts, records and documents are
maintained.
 Every merchant banker shall, after the end of each
accounting period furnish to the SEBI copies of the balance
sheet, profit and loss account and such other documents
for any other preceding five accounting years when
required by the SEBI.

Submission of Half Yearly Results
Introduction
 Every merchant banker shall furnish to the SEBI half-
Registration yearly unaudited financial results when required by the
SEBI with a view to monitor the capital adequacy of the
merchant banker.
Obligations &
Responsibilities
Procedure for
Inspection

incase of Default

Appointment of Lead merchant Bankers
Introduction
 All issues should be managed by at least one merchant
banker functioning as the lead merchant banker.
Registration  Every lead merchant banker shall before taking up the
assignment relating to an issue, enter into an agreement
Obligations & with such body corporate setting out their mutual rights,
Responsibilities liabilities and obligations relating to such issue and in
particular to disclosures, allotment and refund.
Procedure for
Inspection Restriction on appointment of lead managers
 The number of lead merchant bankers may not, exceed in
Procedure for Action case of any issue of Size of issue No. of Merchant Bankers
incase of Default (a) Less than rupees fifty crore - Two (2)
(b) Rupees fifty crore but less than rupees one hundred crore

- Three(3)
(c) Rupees one hundred crore but less than rupees two
hundred crore - Four (4)
(d) Rupees two hundred crore but less than rupees four
hundred crore - Five (5)
(e) Above Rupees four hundred crore five or more as may be
agreed by the SEBI

Responsibilities of Lead Managers
Introduction
 No lead manager shall agree to manage or be associated
with any issue unless his responsibilities relating to the
Registration issue mainly, those of disclosures, allotment and refund
are clearly defined, allocated and determined and a
Obligations & statement specifying such responsibilities is furnished to
Responsibilities the SEBI at least one month before the opening of the
issue for subscription:
Procedure for
Inspection  Incase there are more than one lead merchant bankers,
the responsibilities should be clearly demarcated .
incase of Default
 No lead merchant banker shall, agree to manage the issue
made by any body corporate, if such body corporate is an
associate of the lead merchant banker.

Underwriting Obligations
Introduction
 In respect of every issue to be managed, the lead merchant
banker holding a certificate under Category I shall accept a
Registration minimum Underwriting obligation of five percent of the total
underwriting commitment or rupees twenty-five lakh, whichever
Obligations & is less.
Responsibilities
 Incase the lead merchant banker is unable to accept the
Procedure for minimum underwriting obligation, that lead merchant banker
shall make arrangement for having the issue underwritten to that
Inspection
extent by a merchant banker associated with the issue and shall
keep the SEBI informed of such arrangement.
incase of Default

Appointment of Compliance Officers
Introduction
 Every merchant banker shall appoint a compliance officer
who shall be responsible for monitoring the compliance of
Registration
the Act, rules and regulations, notifications, guidelines,
instructions etc., issued by the SEBI or the Central
Obligations & Government and for redressal of investors’ grievances.
Responsibilities
 The compliance officer shall immediately and independently
Procedure for
report to the SEBI any non-compliance observed by him and
Inspection
ensure that the observations made or deficiencies pointed
Procedure for Action out by the SEBI in the draft prospectus or the Letter of offer
incase of Default as the case may be, do not recur.

(Merchant Bankers) Regulations, 1992 Procedure for Inspection
SEBI’s right to inspect
Introduction
Notice before inspection
Registration
Submission of Reports to the SEBI
Obligations &
Responsibilities Appointment of Auditors

Procedure for
Inspection

incase of Default

SEBIs right to Inspect
Introduction  The SEBI may appoint one or more persons as inspecting
authority to undertake inspection of
Registration
 the books of accounts,
 records and
Obligations &  documents of the merchant banker.
Responsibilities
 Purpose of Inspection . . .
Procedure for
Inspection  to ensure that the books of account are being maintained
in the manner required;
incase of Default  to ensure the provisions of the Act, rules, regulations are
being complied with;

 to investigate into the complaints received from investors,
other merchant bankers or any other person on any
matter having a bearing on the activities of the merchant
banker; and

 to investigate suo-moto in the interest of securities
business or investors interest into the affairs of the
merchant banker.

Notice before Inspection
Introduction
 Before undertaking an inspection under regulation 29 the SEBI
shall give a reasonable notice to the merchant banker for that
Registration purpose.

 During the course of inspection, the merchant banker against
Obligations & whom an inspection is being carried out shall be bound to
Responsibilities discharge his obligations.
Procedure for
Inspection

incase of Default

Submission of Reports to the SEBI
Introduction  The inspecting authority shall, as soon as may be possible
submit an inspection report to the SEBI.
Registration

Obligations & Action on inspection or investigation report
Responsibilities
 The SEBI or the Chairman shall after consideration of
Procedure for inspection or investigation report take such action as the
Inspection SEBI or Chairman may deem fit and appropriate including
action under the Securities and Exchange Board of India.
incase of Default

Appointment of Auditors
Introduction
 The SEBI may appoint a qualified auditor to investigate
Registration into the books of account or the affairs of the merchant
banker provided that the auditor so appointed shall
have the same powers of the inspecting authority
Obligations &
Responsibilities
Procedure for
Inspection

incase of Default

(Merchant Bankers) Regulations, 1992 Procedure for Action in case of Default
Suspension of Registration
Introduction
Cancellation of Registration
Registration
Show-cause notice and order
Obligations &
Responsibilities Effect of Suspension & cancellation of Registration of
Merchant Bankers
Procedure for
Inspection Publication of Order of Suspension

incase of Default

Introduction A penalty of suspension of registration of a merchant banker may be
imposed where –
 The merchant banker violates the provisions of the Act, rules or
Registration regulations;
 The merchant banker –
Obligations & (a) fails to furnish any information relating to his activity as
Responsibilities merchant banker as required by the SEBI;
Procedure for (b) furnishes wrong or false information;
Inspection (c) does not submit periodical returns as required by the SEBI.
(d) does not co-operate in any enquiry conducted by the SEBI.
incase of Default  The merchant banker fails to resolve the complaints of the investors
or fails to give a satisfactory reply to the SEBI in this behalf;
 The merchant banker indulges in manipulating or price rigging or
cornering activities;
 The merchant banker fails to maintain the capital adequacy
requirement;
 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.

Introduction
A penalty of cancellation of registration of a merchant banker
may be imposed if
Registration
The merchant banker indulges in deliberate manipulation or
price rigging or cornering activities affecting the securities
Obligations &
market and the investors interest;
Responsibilities
Procedure for The financial position of the merchant banker deteriorates to
Inspection such an extent that the SEBI is of the opinion that his
continuance as merchant banker is not in the interest of
Procedure for Action investors;
incase of Default
The merchant banker is guilty of fraud, or is convicted of a
criminal offence;

Introduction
 On receipt of the report from the enquiry officer, the SEBI
shall consider the same and issue a show-cause notice as to
Registration why the penalty as proposed by the enquiry officer should
not be imposed.
Obligations &  The merchant banker shall within twenty-one days of the
Responsibilities date of the receipt of the show- cause send a reply to the
Procedure for SEBI.
Inspection  The SEBI after considering the reply to the show-cause
notice, if received, shall as soon as possible but not later
Procedure for Action than thirty days from the receipt of the reply, if any, pass
incase of Default such order as it deems fit.
 Every order passed shall be self- contained and give reasons
for the conclusions stated therein including justification of
the penalty imposed by that order.
 The SEBI shall send a copy of the order to the merchant
banker.

Introduction
Registration
Obligations &
Responsibilities Effect of Suspension & Cancellation of Registration of
Merchant Bankers
Procedure for
Inspection Publication of Order of Suspension

incase of Default

Effect of Suspension & cancellation of Registration of
Introduction Merchant Bankers

Registration  On and from the date of the suspension of the merchant
banker, he shall cease to carry on any activity as a
Obligations & merchant banker during the period of suspension.
Responsibilities
 On and from the date of cancellation the merchant banker
Procedure for shall with immediate effect cease to carry on any activity
Inspection as a merchant banker.
incase of Default

Publication of Order of Suspension
Introduction

 The order of suspension or cancellation of certificate
Registration
passed shall be published in at least two daily newspapers
by the SEBI.
Obligations &
Responsibilities  Any person aggrieved by an order of the SEBI made, on
Procedure for and after the commencement of the Securities Laws
Inspection (Second amendment) Act, 1999, (i.e., after 16th December
1999), under these regulations may prefer an appeal to a
Procedure for Action Securities Appellate Tribunal having jurisdiction in the
incase of Default matter.

Merchant Bankers Regulations

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Merchant Bankers Regulations

Similar to Merchant Bankers Regulations (20)

More from Amar Ranu

More from Amar Ranu (17)

Recently uploaded

Recently uploaded (20)

Merchant Bankers Regulations

Editor's Notes