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INVESTMENT BANKING
In the US, the Glass-Steagall Act, initially created in the wake of the Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities which led to segregation of investment banks from commercial banks. Glass-Steagall was effectively repealed for many large financial institutions by the Gramm-Leach-Bliley Act in 1999. Investment Banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt), as well as providing advice on transactions such as mergers and acquisitions. Until the late 1980s, the United States and Canada maintained a separation between investment banking and commercial banks. A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities. Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side." Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment constitutes the "buy side". Many firms have buy and sell side components

Organizational structure of an investment bank

The main activities and units On behalf of the bank and its clients, the primary function of the bank is buying and selling products. Banks undertake risk through proprietary trading, done by a special set of traders who do not interface with clients and through Principal Risk, risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. An investment bank is split into the so-called Front Office, Middle Office, and Back Office.

Front Office

Investment Banking is the traditional aspect of investment banks which involves helping customers raise funds in the Capital Markets and advising on mergers and acquisitions.

These jobs tend to be extremely competitive and difficult to land. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target.

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Other terms for the Investment Banking Division include Mergers & Acquisitions (M&A) and Corporate Finance. The Investment Banking Division is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry such as Healthcare or Technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as Mergers & Acquisitions, Financial Sponsors, and Leveraged Finance. Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors The Investment management division of an investment bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services. Asset Management deals with institutional investors, while Private Wealth Management manages the funds of high net-worth individuals. Sales & Trading In the process of market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need. Structuring has been a relatively recent division as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities. Merchant banking is a private equity activity of investment banks. Examples include Goldman Sachs Capital Partners, JPMorgan Partners, etc. Sometimes, merchant banking is a part of Alternative Investment division. Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division generates no revenue, its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. Strategy is the division which advises external as well as internal clients on the strategies that can be adopted in various markets.

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Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structurers create new products. Risk Management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade. Another key Middle Office role is to ensure that the above mentioned economic risks are captured accurately, correctly and on time. In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. Finance areas are responsible for an investment bank's capital management and risk monitoring. By tracking and analyzing the capital flows of the firm, the Finance division is the principal adviser to senior management on essential areas such as controlling the firm's global risk exposure and the profitability and structure of the firm's various businesses. Compliance areas are responsible for an investment bank's daily operations' compliance with FSA regulations and internal regulations. Often also considered a back-office division.

Back Office

Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. It is however a critical part of the bank that involves managing the financial information of the bank and ensures efficient capital markets through the financial reporting function.

Technology refers to the IT department. Every major investment bank has considerable amounts of inhouse software, created by the Technology team, who are also responsible for Computer and Telecommunications-based support.

Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading platforms. These platforms can serve as auto-executed hedging to complex model driven algorithms.

MERCHANT BANKING SERVICES & FUNCTIONS

ISSUE MANAGEMENT INTERMEDIARIES 1. The new market / activity was regulated by Controller of Capital Issues ( CCIs ) under provisions of Capital Issues Act 1947. 2. The protection of the interest of the investors in securities market & promotion of the development & regulation of the market became the responsibility of the SEBI.

3. A significant organizational development in the Indian Primary Market has been emerge of an
array of intermediaries which play a critical role in the process of selling new issues. 4. The focus is on lead managers, underwriters, bankers to issue, registrars & share transfer agents, debenture trustee & portfolio managers. MERCHANT BAKERS / LEAD MANAGERS 1. A merchant banker means any person who is engaged in the business of issue management either by a) Making arrangement regarding selling , buying or b) Subscribing to securities or c) Acting as manager / consultants / advisor or d) Rendering corporate advisory service in relation to issue management. 2. Issues means an offer for sale of securities by corporate from the public or from the holders of heir securities, through merchant banker. 3. Importance of merchant bankers as sponsors of capital issues is reflected in their major services such as: a) Determining the composition of the capital issues is security / ties to be issued. b) Draft of prospectus ( offer document ) & application forms c) Compliance with procedural formalities d) Appointment of registrars to deal with share application & transfers e) Listing of securities

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f) Arrangement of underwriting / sub-underwriting

g) Placing of issues h) Selection of brokers to the issues i) Publicity & Advertising agents, printers

4. In case of right issues not exceeding Rs.50 Lacs, such appointment may not be necessary.

Salient Features of SEBI Framework for their operations 1. Merchant Bankers require compulsory registration with SEBI to carry out their activities. 2. They fall under four categories: CATEGORY I a) Preparation of prospectus & other information relating to issue b) Determining the financial structure c) Tie Up of financiers d) Final allotment of securities e) Refund of the subscription f) They can act as advisors, consultants, managers, underwriters or portfolio managers

CATEGORY II Merchant Bankers can at as: Advisors, Consultants, Co-managers, underwriters & portfolio managers CATEGORY III Merchant Bankers can at as: Advisors, Underwriters & Consultants to an issue. CATEGORY IV Merchant Bankers can at as: Only as advisor or consultant to an issue

Therefore, only Category I Merchant Bankers can act only as Lead Managers to an issue. And they are registered with SEBI.

3. Merchant bankers can be a corporate body other than NBFC. 4. They should have necessary & adequate infrastructure. 5. They should fulfill the capital adequacy of minimum net worth of Rs.5 Cr ( Paid Up Capital + Reserve ) 6. They should have recognized professional qualification in finance, law, Business Management 7. Merchant Banker has to pay an application fee of Rs.25000, Registration fee of Rs.10 Lacs & renewal fee of Rs.5 Lacs after 4 years.

Code of Conduct for Merchant Bankers: 1. Make all efforts to protect the interest of investors 2. Maintain high standards of integrity, dignity & fairness in business 3. Ensure that adequate disclosures are made to the investors 4. Copies of prospectus, offer document, letter offer should be made available to the investor at the time of issue. 5. Not to make any statement, either oral or written, which would misrepresent the services.

Responsibilities of Lead Managers 1. Every lead manager has to enter into an agreement with issuing companies, setting out their mutual rights. 2. It is necessary for a lead manager to accept a minimum underwriting obligation of 5% of the total underwriting commitment or Rs.25 lacs whichever is less. 3. He has to submit, a due diligence certificate to SEBI, at least two weeks before the opening of the issue. 4. They have to submit particulars of the issue, draft prospectus, offer letter to ROC ( Registrar of Companies ) & regional stock exchanges at least two weeks before the date of filing to the SEBI.

5. The draft prospectus of the offer should be submitted to SEBI along with the prescribed fee mentioned below: a) Public Issue For Issue Size up to Rs.10 Cr ------------------------------------Rs.25,000 / flat For Issue Size up to Rs.500 Cr ---------------------------------- 0.025% of issue size For Issue Size up to Rs.5000 Cr To Rs.25000 -------------- Rs. 1.25 Cr + 0.025% of issue size in excess of 5000 Cr Issue Size more than Rs.25000 Cr ---------------------------- Rs. 3 Cr b) Rights Issue For Issue Size up to Rs. 10 Cr --------------------------------- Rs.25,000 / flat For Issue Size up to Rs.500 Cr ---------------------------------- 0.005% of issue size Issue Size more than Rs.500 Cr -------------------------------- Rs. 5 Lacs /- flat

6. Merchant Bankers have to disclose to the SEBI a) Their responsibilities with regard to management of issue b) Any change in information previously furnished c) Name of companies whose issue they have managed d) Particulars related to breach of capital adequacy requirements e) Information related to his activities as manager, underwriter, consultants or advisor to an issue.

UNDERWRITERS:: 1. Another important intermediary in the primary market who agree to take securities which are not fully subscribed. 2. They make a commitment to get the issue subscribed either by others or by themselves. 3. Underwriters are appointed by the issuing companies in consultation with the lead managers / merchant bankers to the issue. 4. In granting certificate of registration, SEBI considers

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a) The necessary infrastructure b) Past experience in underwriting c) Any person directly or indirectly connected with applicant d) Capital adequacy requirement not less than the net worth of RS.20 Lacs 5. An underwriter cannot derive any direct or indirect benefit from underwriting the issue other than underwriting commission.

BANKERS TO AN ISSUE 1. The bankers to an issue are engaged in activities such as acceptance of application along with application money from the investors in respect of issues of capital & refund of application money. 2. To carry on activity, a person must obtain certificate of registration from SEBI. 3. Whenever required, banker to an issue has to furnish following information to SEBI: a) The number of issue for which banker was engaged. b) The number of applications / money received. c) The dates on which applications were forwarded to company & registrar. d) The dates / amount of refund to the investors. 4. Bankers to issue should not allow blank application. a) Not to accept applications after office hours b) Not to accept applications after the closure of public issue

BROKERS TO AN ISSUE 1. Brokers are the persons mainly concerned with the procurement of subscription to an issue from the prospective investors. 2. Appointment of brokers is not compulsory & companies are free to appoint any number of brokers. 3. The managers to the issue & the official brokers organize the preliminary distribution of securities & procure direct subscriptions from as large or as wide circle of investors.

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4. The stock exchanges bye-laws prohibit the members from acting as managers or brokers to the issue. 5. Any entry experienced & unknown agencies in the field of new issue as issue managers, underwriters, brokers is discouraged. 6. The brokerage rate applicable to all types of public issue of industrial securities is fixed at 1.5%, whether the issue is underwritten or not. 7. Mailing cost & other out of pocket expenses for canvassing of public issues have to be borne by the stock brokers & no payment on that account is made by the companies. 8. The issuing company is expected to pay brokerage within two months from the date of allotment of shares.

REGISTRARS TO AN ISSUE & SHARE TRANSFER AGENTS 1. It is an intermediary in primary market to carry on activities: a) Collecting applications from the investors b) Keeping a proper record of applications c) Money received from investors d) Assisting companies in determining the basis of allotment of securities in consultation with stock exchanges e) Finalizing the allotment of securities & dispatching allotment letters, refund offers, certificates & other related documents. 2. The share transfer agents maintain the records of holders of securities & deal with the matters connected with transfer of securities. 3. To carry out their activities, they must be registered with SEBI & renew the certificate of registration. 4. They are divided into two categories: Category I To carry out the activities as registrars & transfer agent to the issue. Category II To carry on the activity either as registrars or share transfer agent

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5. The capital adequacy requirement in terms of net worth is Rs. 6 Lacs & Rs. 3 Lacs for Category I & II 6. They should exercise adequate care, caution & due diligence before dematerialization of securities by confirming & verifying that the securities to be dematerialized have been granted listing permission by the stock exchanges.

DEBENTURE TRUSTEE: 1. A debenture trustee is a trustee for a trust deed needed for securing any issue of debentures by a company or any private placement of debentures by a listed or proposed to be listed company. 2. Only banks, public financial institution, insurance companies & corporate bodies fulfilling capital adequacy of Rs. 1 Cr in terms of net worth as per latest audited balance sheet can act as trustees. 3. Debenture trustee has to enter into a written agreement with corporate body before opening of the subscription of issue of debentures. 4. Description of instruments state the purpose of raising finance through debenture issue, description of debenture as regards amount, tenure, interest / coupon rate, periodicity of payment, period of redemption, options available, terms of conversion. 5. Following are some of the important duties: a) Two consecutive defaults in payment of interest to debenture holders b) Default in creation of security for debenture holders. c) Default in redemption of debentures

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ISSUE MANAGEMENT ( ACTIVITIES / PROCEDURES ) 1. In order to remove inadequacies & deficiencies, to protect the interest of investors and for orderly growth & development of securities market, SEBI has put in place guidelines as ground rules relating to new issue procedures / activities. ELIGIBILITY NORMS: Filing offer documents: a) In case of public issue of securities by a listed company through rights issue in excess of Rs. 50 Lacs, a draft prospectus should be files with SEBI through a Merchant Banker, at least 30 days prior to filing it with ROCs. b) SEBI may specify changes on the draft prospective only after receipt of in principle approval from the exchanges on which proposed securities are to be listed.

FAST TRACK ISSUES: The above requirement would not apply to a public / right issue by a listed company, if the following conditions are satisfied. 2. Shares of company listed on stock exchange at least for 3 years. 3. The average market capitalization of public shareholding of the company is at least Rs.10,000Cr for one year. 4. No prosecution proceedings issued by SEBI & pending as an date. 5. The entire shareholding of the promoter is held in de-mat as on date

INITIAL PUBLIC OFFERING ( IPOs ) By Unlisted Companies An unlisted company can make IPO of equity shares at a later date only if it meets all following conditions: 1. It has net tangible assets of at least Rs. 3 Cr of which not more than 50% should be in monetary assets.

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2. It has a track record of distributable profits in terms of Section 205 of the companies act for at least 3 out of immediately 5 years. 3. It has a net worth ( i.e. aggregate value of paid-up equity capital ) as per balance sheet of at least Rs. 1 Cr in each of preceding 3 full years 4. If an unlisted company does not comply with any conditions specified, it may make an IPO of equity shares if it satisfy following conditions a) Issue is made through the book-building process with at least 50% of the net offer to public being allotted to QIBs ( Qualified Institutional Buyers ) OR The project has at least 15% participation by banks / financial institution of which at least 10% comes from the appraisers.

5. A QIB Means: 1) A Public Finance Institution ( PFI ) 2) Banks 3) Mutual Funds 4) Foreign Institutional Investors ( FIIs ) 5) Multilateral & Bilateral development finance institutions 6) Venture Capital Funds ( VCs ) 7) Foreign Venture Capital Investor 8) State Industrial Development Corporation 9) Insurance companies registered with IRDA 10) Provident funds with minimum corpus of Rs. 25 Cr 11) Pension funds with minimum corpus of Rs. 25 Cr 12) National Investment fund set up by Govt. Of India.

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PUBLIC ISSUE BY LISTED COMPANIES 1. All listed companies are eligible to make public issue of equity shares on the condition that the issue size (proposed) & make previous issues made in the same financial year does not exceed 5 times its pre-issue net worth as per audited balance sheet. 2. Eligibility norms for specified IPOs by unlisted companies & listed companies are not applicable in following cases: a) Private / Public sector banks b) Infrastructure companies where projects are approved by PFI / IDFC / IL&FS c) Not less than 5% of the project cost has been financed by PFIs. d) Rights issue by a listed company

IPO Grading: An unlisted company should obtain grading for IPO from at least one rating agency. Partly Paid Up Shares Before making a public issue of equity shares, all existing partly paid up shares should be paid fully. Pricing of Issues: 1. An unlisted company eligible to make a public issue can also freely price shares & convertible securities. 2. The free pricing of equity shares by an infrastructure company is subject to compliance with disclosure norms as specified by SEBI. 3. While freely pricing initial public issue of shares, all banks require approved by RBI.

DIFFERENTIAL PRICING 1. Listed & unlisted companies may issue shares to applicants in the firm allotment category ( i.e. allotment on a firm basis made to Indian & Multilateral Development Financial Institution, Indian Mutual Funds, FIIs including NRIs / Overseas corporate bodies ) at a price different from the

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price at which the net offer to public is made, provided price at which the security is offered to the applicants in a firm allotment category is higher than the price offered to public.

Price Band 1. The issuer can mention a price band of 20% in the offer document filed with SEBI & actual price can be determined at a later date. 2. The lead merchant banker should ensure that in case of listed companies, 48 hr notice of the Board of Director meeting, for passing resolution for determination of price is given to stock exchange. 3. In case of public issue by listed company, issue price / band may not be disclosed in the draft prospectus filed with SEBI.

Denomination of Shares: 1. In case of IPO by an unlisted company: a) If the issue price is Rs.500 or more, the company would have a discussion to fix the face value below Rs.10 b) If the price is less than Rs.500, the face value would be Rs.10 2. However, these requirement would not apply to an IPO by Govt. Companies / Statutory Authority / Corporation / Set up by them engaged in infrastructure sector. 3. Infrastructure includes following services: Transportation Roads, Highways, Ports, Aviation, Logistics, Rail system Agriculture Storage facilities Water Management Irrigation / Water Treatment Water supply Telecom Basic, Cellular, Domestic satellite services, Broadband services Power / Petroleum & Natural gas / Housing

PROMOTERS CONTRIBUTION & LOCK IN REQUIRMENTS 1. Promoters should contribute at least 20% of the post issue capital.

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2. Promoter should bring in full amount of their contribution at least one day before public issue opens & would be kept in as ESCROW A/C with a bank & would be released to company along with public issue proceeds.

3. Requirement of promoters contribution is not applicable in the following three cases. a) Company is listed on stock exchanges for at least 3 yrs & having track record of dividend payment for at least 3 yrs. b) Where no identifiable promoter / promoter group exists. c) Rights issue 4. In all issues of capital to the public, the minimum promoters contribution would be locked in for a period of three years.

5. The lock in period would start from the date of allotment in the issue & the last date of the lock-in
period would be reckoned as 3 years from the date of commencement of commercial production. 6. The entire Pre-issue share capital, other than lock-in as Promoters contribution, would be locked in for 1 yr from the date of allotment.

7. But shares held by Promoters lent to Stabilizing Agent are exempted from the lock-in
requirements for the period starting from the date of lending to the date when they are returned to the same promoters. This mechanism is called as GREEN SHOE OPTION. 8. These stipulations are not applicable to the pre-issue share capital held by a) VCF Venture Capital Funds / Foreign VCF for at least 1 yr on the date of filing draft with SEBI.

ISSUE OF INDIAN DEPSITORY RECEIPTS ( IDRs ) 1. An IDR means an instrument in the form of a depository receipt created by a Domestic Depository (DD) in India against the underlying equity shares of the issuing company incorporated outside India. 2. The issuing company of IDRs should satisfy following conditions: a) Its pre-issue paid up capital & free reserves are at least US $ 100mn & it has had an average turnover of US $ 500mn during 3 preceding years.

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b) It has been making profits & declaring a minimum 10% dividend for at least 5 yrs preceding the issue. c) Its pre-issue Debt Equity Ratio does not exceed 2:1 3. It should appoint an Overseas Custodian Bank ( OCB ) having a custodial arrangement with domestic depository (DD) and merchant banker for the issue of IDRs. 4. It would deliver the underlying equity shares to the OCB who would authorize the DD to issue IDRs. 5. The ceiling on IDRs by a company in any financial year is 15% of paid up capital & reserves & they would be denominated in Indian Rupees only. 6. A holder may transfer or may ask the DD to redeem the IDRs. In case of redemption, the DD would request the OCB to get the corresponding underlying shares released in favor of the holder of IDRs. 7. Automatic fungibility of IDRs is not permitted.

8. In every issue of IDR:

a) At least 50% of the IDRs would be subscribed by the QIBs. b) The balance 50% should be available for non-institutional investors, retail individual investors including employees. c) Minimum issue of IDR should not be less than Rs.50 Cr

ISSUE ADVERTISEMENT

1. The term advertisement is defined to include notices, brochures, pamphlets, circulars, show cards, catalogues, hoardings, placards, posters, insertions in the newspapers, pictures, films cover pages of offer documents, radio, TV channels. Issue Advertisement should have following features: 1. It should be truthful, fair, clear & should not contain untrue statements. 2. It should reproduce information which will disclose full & relevant facts. 3. It should not contain misleading statements about performance. 4. Extensive use of technical & legal terms should be avoided.

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5. No models, celebrities, landmarks should played on or a part of offer documents. 6. No slogans, no factual titles should appear in issue advertisement

BOOK BUILDING Book building means a price by which a demand for the securities proposed by a corporate body is elicited & built up & the price for which is assessed by for determination of quantum of securities to be issued by means of a notice / circular / advertisement.

75% Book Building Process 1. The issuer company can reserve the securities for firm allotment through book-building process. 2. Securities available to the public should be separately identified as Net offer to the public. The requirement of 25% of securities to the public is also applicable. 3. Underwriting is mandatory to the extent of the net offer to the public. 4. One of the Lead Merchant Banker to the issue should be mentioned in the prospectus. 5. The copy of the draft prospectus, filed with SEBI, should be circulated by boo-runner to a) Institutional Buyers b) Intermediaries, eligible to act as underwriters. 6. The book runner should maintain a record of names & number of securities ordered & the price at which the Institutional Buyer is willing to subscribe under placement option. Underwriters should maintain record of placement portion.

7. He should aggregate these offers & intimate same to the book runner. 8. On the receipt of the information, the book runner & issuer company determine the price at
which the securities would be offered to the public. 9. The issue price for placement option & offer to the public should remain the same. 10. On determination of the price, underwriter should enter into an underwriting agreement with issuer indicating number of securities as well as the price at which former would subscribe to the securities. 11. Book runner should have an option to require the underwriters to pay all money with respect to their underwriting commitment in advance.

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12. The issuer company should open two different accounts for collection of application money a) One for the private placement b) Other for public

13. A day prior to opening of the issue, book runner should collect application forms with money from the institutional buyer & underwriters. 14. The issuer company may have one date allotment which should be deemed as the date of allotment of securities through book-building process. 15. In case of under subscription in the net offer to the public, a spill over to the extent of under subscription should be permitted from the placement portion subject to the condition that preference would be given to the individual investors. 16. The issuer company may pay interest on the application money till the date of allotment uniformly to all the participants.

OFFER TO PUBLIC THROUGH BOOK BUILDING PROCESS: 1. 100 % of the net offer to the public through Book Building process. 2. 75 % of the net offer to the public & 25 % at the price determined through book-building. 3. Reservation or firm allotment to the extent of percentage can be made only to promoters, permanent employees of company as per SEBI guidelines. 4. The issuer company should enter into an agreement with stock exchanges which have the system of online offer of securities. It should provide a dispute resolution mechanism between them.

ASBA / SCSBS In case of Application Supported By Blocked Amount ( ASBA ), Self Certified Syndicate Banks ( SCSBS ) should accept & upload details in electronic bidding system of the stock exchange. 1. ASBA means an application for subscribing to an issue containing an authorization to block the application money in a bank account. 2. ASBA through blocking of funds in a bank A/c with SCSB / not bidding under any reserve category.

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3. SCSBS is a SEBI registered banker to an issue offering services of making ASBA & recognized. 4. Such brokers & SCSBS would be considered as Bidding / Collection Canters. They should collect the money from clients for every order place d by them.

The total size of the issue should be mentioned in the draft prospectus. 1. The red herring prospectus should disclose either the floor price of securities or a price band along with the range within which the price can move. 2. The announcement of opening the issue should contain the relevant financial ratios, computed for both upper & lower end of the price. 3. The book-runners & issuer company should determine the issue price based on bids received. 4. On determination of the price, the number of securities to be offered should be determined ( issue size divided by the price ). Once the final price ( Cut-off ) is determined, all the bidders whose bids have been founded to be successful would be entitled for the allotment of securities. 5. On determination of the entitlement, the information regarding the same should intimated immediately to the investors. 6. The following accounting ratios should be given under the basis for for issue price for each accounting periods 1. EPS pre-issue for the last 3 years 2. P/E pre-issue 3. Average return on net worth in the last 3 years. 4. Net asset value per share based on last balance sheet. 5. Comparison of all the above accounting ratios of company with Industry average / those of peer group.

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PROCEDURE FOR BIDDING 1. The bid should be open for at least 3 days & not be more than 7 days. 2. Bidding should be permitted only if an electronically linked transparent facility is used. 3. In case of 100 % of the net offer, bidding centers should be located at all places where stock exchanges are situated. 4. Individuals as well as QIBs should place to revise their bids provided QIBs are not allowed to withdraw their bids after the closure of the bidding. 5. At the end of each day of the bidding period, the demand should be shown graphically on the terminals for information of the syndicate members.

Allocation / Allotment Procedure; 1. In case of issue of 100% net offer to the public: a) At least 35% of the net offer to the public should be available for allocation to retail investors. b) At least 15% to non institutional investors ( other than retail & QIB ) c) Not more than 50% to QIBs 2. In case of 75% of the net offer to public a) 25% to the net offer to public b) Not more than 50% to Non-QIBs & QIBs 3. Out of the portion available to QIBs, up to 30% may be allocated to Anchor Investors, who should necessarily be QIBs. 4. The minimum application size by an Anchor Investor should be Rs.10 Cr & 1/3 rd of their portion should be reserved for domestic Mutual Funds. 5. The Anchor Investor would have to pay the additional amount in case the price of the public issue is higher than the price at which the allocation is made to him. 6. After finalization of the basis of allocation, the Registrars to the issue should send the computer file containing the allocation details along with broker wise funds. 7. The broker would be responsible to deposit the amount in the ESCROW account to the extent of allocation to his client.

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8. On receipt of the basis of allocation data, brokers should immediately intimate allocation to clients. 9. The margin money already paid by the applicant should be adjusted towards the total application money payable. 10. The brokers should thereafter hand over the application forms of the successful applicants to the stock exchange to be submitted to the Registrars of the issue for their records. 11. In the event of successful applicants failing to pay application money, the concerned broker should bring in the funds to the extent of default / short fall; failing which the exchange would declare him as a defaulter & initiate under its bye laws. 12. The book runners who have underwritten the issue would have to bring in the shortfall. 13. On pay-in date, the clearing house automatically debit the ESCROW A/c of each broker to the extent of allocation made to his clients & credit the amount collected to the issue account. 14. After the allotment the Registrar to the issue would post the share certificates to the investors or instruct depository to credit Escrow securities a/c of each other. 15. The broker would transfer from his escrow a/c the shares to the applicant depository account after full payment by them and confirm the same to the book-runner.

GREEN SHOE OPTION 1. A Company making an initial public offer of equity shares can avail of Green Shoe Option ( GSO ) for stabilizing the post listing price of its shares. 2. The GSO means an option of allocating shares in excess of the shares included in the public issue and operating a post listing price stabilizing mechanism through a stabilizing agent ( SA ). 3. The issuing company should seek authorization for the possibility of allotment of further issues to the SA at the end of the stabilization period together with the authorization for the public issue in the general meeting of its shareholders. 4. It should appoint one of the merchant banker from the issue management team as the SA, who would be responsible for the price stabilization process. 5. SA should enter into an agreement with the issuer, prior to filing offer document with SEBI.

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6. He should also enter into an agreement with the promoters who would lend their shares, specifying the maximum number of shares that may be borrowed by them, but in no case exceeding 15 % of the total issue size. 7. Over allotment refers to an allocation of shares in excess of the public issue made by the SA out of shares borrowed from promoters in pursuance of a GSO exercised by the issuing company.

IPO Through Stock Exchanges Online System ( E IPO ) 1. A company issue capital to public, through online system of the stock exchange has to comply with requirements. They are applicable to fixed price issue as well as for the fixed price portion of the issue. 2. The company should enter into an agreement with the stock exchange specifying their mutual rights / duties / responsibilities. 3. Stock exchange would appoint SEBI registered stock brokers. They would collect money from the clients for orders placed & in case Clients fail to pay for shares allocated, the brokers would have to pay the amount. 4. The company / lead managers should ensure that the appointed brokers are financially capable of honoring their commitments if their clients default.