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8/4/2019 SEBI Guidelines for MB
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SEBI Guidelines for
Merchant Bankers
Kanika Khurana
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SECURITIES AND EXCHANGE BOARD
OF INDIA
(MERCHANT BANKERS)
REGULATIONS, 1992
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Definitions
• “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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Definitions
• “issue” means an offer of sale or purchase of
securities by any body corporate/ persons, to orfrom the public, or the holders of securities
through a merchant banker;• “issue management” consists of prospectus and
other information relating to the issue,determining financial structure, tie-up of
financiers and final allotment and refund of subscriptions, underwriting and portfoliomanagement services;
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Activities of Merchant Bankers
Activities relating to the securities market, andwhich do not require registration as an NBFC (asper SEBI Circular issued in June 1998)
• Managing of Public Issues of securities• Underwriting connected with issues
• Managing of International offerings- ADRs, GDRs,Bonds
• Private placement of securities
• Primary or satellite dealership of govt. securities
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Activities of Merchant Bankers
• Corporate Advisory services related to
securities market eg. Takeovers, acquisitions,
disinvestment
• Stock Broking
• Advisory services for projects
• Syndication of rupee term loans• International Financial Advisory services
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Registration of Merchant Bankers
• Merchant Bankers can be in the form of
subsidiaries or divisions of banks, public or
private limited companies, partnerships and
even proprietary concerns.
• As on July 26, 2011, there were 179 merchant
bankers registered with SEBI and another 41
applications were under process of renewal.
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Registration of Merchant Bankers
Application for grant of certificate.• An application for registration made shall be accompanied by a
non-refundable application fee
• The application shall be made for any one of the following
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 the issue, determining financial structure, tie
up of financiers and final allotment and refund of the subscriptions;and
(ii) to act as adviser, consultant, manager, underwriter, portfolio
manager;
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Registration of Merchant Bankers
(b) Category II, to act as adviser, consultant, co-manager,underwriter, portfolio manager;
(c) Category III, to act as underwriter, adviser, consultant to anissue
(d) Category IV, to act only as adviser or consultant to an issue• With effect from 9th December, 1997, an application can be
made only for carrying on the activities mentioned inCategory I
• An applicant can carry on the activity as portfolio manageronly if he obtains separate certificate of registration under theprovisions of the Securities and Exchange Board of India(Portfolio Manager) Regulations, 1993.
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Consideration of application
The Board shall take into account for considering the grant of a certificate, the following requirements:
• the applicant shall be a body corporate other than a non-banking financial company
• the applicant has the necessary infrastructure likeadequate office space, equipments, and manpower
• the applicant has in his employment minimum of twopersons who have the experience to conduct the business
• a person directly or indirectly connected with the
applicant has not been granted registration• the applicant fulfils the capital adequacy requirement i.e.
a net worth of not less than Rs.5 crore at the time of making application
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Consideration of application
• the applicant/ partner/ director/ principal officer is not
involved in any litigation connected with the securities market
• the applicant/ partner/ director/ principal officer has not at
any time been convicted for any moral/ economic offence
• the applicant has the professional qualification from an
institution recognized by the Government in finance, law or
business management;
• grant of certificate to the applicant is in the interest of
investors
• the applicant is a fit and proper person (as per criteria
specified in SEBI (Intermediaries) Regulations, 2008)
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Renewal of certificate
• Three months before the expiry of the period of certificate, the merchant banker may make anapplication for renewal along with a non-refundableapplication fee
The application for renewal shall be accompanied by
• details of the changes that have taken place in theinformation that was submitted while seekingregistration or earlier renewal,
• declaration stating that no changes other than thosementioned have taken place.
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Conditions of registration
Any registration granted or any renewal granted shall be subject to the
following conditions, namely:—
• where the merchant banker proposes to change its status or
constitution, it shall obtain prior approval of the Board
• it shall pay the fees for registration or renewal
• it shall take adequate steps for redressal of grievances of the
investors within one month of the date of the receipt of the
complaint and keep the Board informed about the number, nature
and other particulars of the complaints received;• it shall maintain capital adequacy requirements at all times during
the period of the certificate or renewal thereof;
• it shall abide by the regulations made under the Act in respect of
the activities carried on by it as merchant banker.
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Period of validity of certificate
• The certificate of registration granted or its
renewal granted shall be valid for a period of
three years from the date of its issue
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES • Every merchant banker shall abide by the Code of Conduct
(discussed later)
• Merchant banker not to associate with any business other thanthat of the securities market
Maintenance of books of account, records etc.
• Every merchant banker shall keep and maintain the following booksof account
(a) a copy of balance sheet
(b) a copy of profit and loss account
(c) a copy of the auditor’s 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.
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
• every merchant banker shall, after the end of eachaccounting period furnish to the Board the books of accounts for preceding five accounting years whenrequired by the Board
• Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required bythe Board with a view to monitor the capital adequacy
• Every merchant banker shall, within two months from
the date of the auditor’s report, take steps to rectifythe deficiencies made out in the auditor’s report.
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Responsibilities of lead managers.
• No lead manager shall agree to manage or be associated with
any issue unless his responsibilities relating to issue mainly,
those of disclosures, allotment and refund are clearly defined,
allocated and determined and a statement specifying suchresponsibilities 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 issue the responsibilities of each of such leadmerchant bankers shall clearly be demarcated and a statement
specifying them is furnished to the Board at least one month
before the opening of the issue for subscription.
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Responsibilities of lead managers.
• A lead merchant banker shall not be associated with any
issue if a merchant banker who is not holding a certificate
is associated with the issue.
• A merchant banker shall not lead manage any issue or be
associated with any activity under any regulations made by
the Board, if he is a promoter/director/associate of the
issuer of securities or of any person making an offer to sell
or purchase securities
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Underwriting obligations.
• In respect of every issue to be managed, the lead
merchant banker shall accept a minimum underwriting
obligation of 5% of the total underwriting commitmentor Rs.25 lakhs, whichever is less
• if the lead merchant banker is unable to accept the
minimum underwriting obligation, that lead merchant
banker shall make arrangement for having the issueunderwritten to that extent by a merchant banker
associated with the issue
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES Due Diligence Certificate
• Lead Manager is responsible for the verification of contents in theprospectus/ letter of offer and reasonableness of the viewsexpressed in them
• Lead Manger has to submit to SEBI a due diligence certificate at
least 2 weeks prior to opening of the issue, to the effect that,a) Prospectus/letter of offer are in conformity with the
documents, materials and papers relevant to the issue
b) All legal requirements connected to the issue have beencomplied with
c) All disclosures are true, fair and adequate and enable theinvestors to make a well informed decision regardinginvestment in the proposed issue
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Documents to be submitted to SEBI
• Lead manger has to submit to SEBI at least 2 weeks before
date of filing with Registrar of Companies/ Stock exchanges-
the particulars of issue, draft prospectus/letter of offer
(along with prescribed fees), other literature to be circulated
to the investors
• Lead manager has to ensure that modifications/ suggestions
made by SEBI with respect to in formation given to investors
are duly incorporated
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Acquisition of shares prohibited.
• 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 unpublishedprice sensitive information obtained by them during the course
of any professional assignment.
Information to the Board.
• Every merchant banker shall submit to the Board completeparticulars of any transaction for acquisition of securities of any
body corporate whose issue is being managed by that merchant
banker within 15 days from the date of entering into such
transaction.
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES Disclosures to the Board.
A merchant banker shall disclose to the Board, as and when required, the
following information :—
• his responsibilities with regard to the management of the issue;
• any change in the information or particulars previously furnished, whichhave a bearing on the certificate granted to it;
• the names of the body corporate whose issues he has managed or has
been associated with;
• the particulars relating to the breach of the capital adequacy requirement
• Information relating to his activities as a manager, underwriter,consultant or adviser to an issue
The merchant banker shall submit a half yearly report for the period ending
with 31st March and 30th September of every year, in the prescribed
format, the above details within three months from the close of the
period
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GENERAL OBLIGATIONS AND
RESPONSIBILITIES
Appointment of compliance officer
• Every merchant banker shall appoint a compliance officer
who shall be responsible for monitoring the compliance of the
Act, rules and regulations, notifications, guidelines,
instructions, etc., issued by the Board or the Central
Government and for redressal of investors’ grievances.
• The compliance officer shall immediately and independently
report to the Board any non-compliance observed by him
and ensure that the observations made or deficiencies
pointed out by the Board in the draft prospectus or the letter
of offer, do not recur.
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PROCEDURE FOR INSPECTION
Board’s right to inspect.• The Board may appoint one or more persons as inspecting authority to
undertake inspection of the books of account, records and documents of
the merchant banker
The purposes may be as follows:
• to ensure that the books of account are being maintained in the manner
• required
• that 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
• to investigate suo moto (on its own initiative) in the interest of securities
business or investors interest into the affairs of the merchant banker.
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PROCEDURE FOR INSPECTION
Reasonable Notice for inspection shall be given; Notice may not be givenif Board is satisfied that the same is in interest of investors
Obligations of merchant banker on inspection- every director, proprietor,partner, officer and employee of the merchant banker shall
• produce to the inspecting authority such books, accounts and otherdocuments in his custody relating to his activities
• reasonable access to the premises occupied
• give its assistance in connection with inspection
• let inspecting authority examine or record their statements
Appointment of auditor- The Board may appoint a qualified auditor (withthe same powers as inspecting authority) to investigate into the booksof account or the affairs of the merchant bankers.
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PROCEDURE FOR ACTION IN CASE OF
DEFAULT
• A merchant banker who contravenes any of
the provisions of the Act, Rules or Regulations
shall be liable for one or more actions
specified therein including the actions underSEBI (Intermediaries) Regulations, 2008.
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FEES
• Every merchant banker shall pay a sum of Rs.10 lakh
fees at the time of the grant of certificate
• A merchant banker to keep registration in force shall
pay renewal fee of Rs.5 lakh every three years• The fee referred to shall be paid by the merchant
banker within fifteen days from the date of receipt
of intimation from the Board
• The non-refundable fee payable along with an
application for registration or an application for
renewal of registration shall be Rs.25,000.
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FEES
• There shall be charged on every draft offer
document submitted by a merchant banker to
the Board, a fee at the following rates:
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Public Issues
Size of the issue, including
intended retention of
oversubscription
Amount / Rate of fees
Less than or equal to
ten crore rupees.
A flat charge of twenty five thousand
rupees (Rs.25,000/-).
More than ten crore rupees, but less
than or equal to five
thousand crore rupees.
0.025 per cent. of the issue size.
More than five
thousand crore rupees, but less than
or equal to twenty fivethousand crore rupees.
One crore twenty five lakh rupees
(Rs.1,25,00,000/-) plus 0.00625 per cent
of the portion of the issue size in excessof five thousand crore rupees
(Rs.5000,00,00,000/-).
More than twenty five
thousand crore rupees.
A flat charge of three crore rupees
(Rs.3,00,00,000/-).
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Rights Issues
Size of the issue, including
intended retention of
oversubscription
Amount / Rate of fees
Less than or equal toten crore rupees.
A flat charge of twenty five thousandrupees (Rs.25,000/-).
More than ten crores rupees and
less than or equal to five
hundred crore rupees.
0.005 per cent. of the issue size.
More than five
hundred crore rupees.
A flat charge of five lakh rupees
(Rs.5,00,000/-).”
Source: SECURITIES AND EXCHANGE BOARD OF INDIA (PAYMENT OF FEES) (AMENDMENT) REGULATIONS, 2008
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CODE OF CONDUCT
• A merchant banker shall make all efforts to protect the interests of investors.
• A merchant banker shall fulfil its obligations in a prompt, ethical,and professional manner.
• A merchant banker 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 isadvised of any further steps which may be available to the investor
under the regulatory system.• A merchant banker shall ensure that adequate disclosures aremade to the investors in a timely manner in accordance with theapplicable regulations and guidelines so as to enable them to makea balanced and informed decision.
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CODE OF CONDUCT
• A merchant banker shall endeavour to ensure that the investors are
provided with true and adequate information without making any
misleading or exaggerated claims or any misrepresentation and
are made aware of the attendant risks before taking any
investment decision.• A merchant banker shall endeavour to ensure that copies of the
prospectus, offer document, letter of offer or any other related
literature is made available to the investors at the time of issue or
the offer.
• A merchant banker shall ensure that the Board is promptlyinformed about any action, legal proceedings, etc., initiated
against it in respect of material breach or non-compliance by it, of
any law, rules, regulations, directions of the Board or of any other
regulatory body.
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CODE OF CONDUCT
• A merchant banker shall be responsible for the acts or
omissions of its employees and agents in respect of the
conduct of its business.
• A merchant banker shall not be a party to or instrument
for—
(a) creation of false market ;
(b) price rigging or manipulation ; or
(c) passing of unpublished price sensitive information in
respect of securities which are listed and proposed to be listed
in any stock exchange to any person or intermediary in the
securities market.