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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 Department of Finance University of Dhaka

R E P A R E D

B Y :

G R O U P

1 3

Name
Tofazzal Hossain Heera Alamgir Hossain Kanij Fatema Nazia Mahmuda Joity Md Firoz Wahid Md Tanveer Haider Md Yeasir Arafat Md Tariqul Islam Chowdhury

Roll
12 - 011 12 - 050 12 - 077 12 - 092 12 - 100 12 - 110 12 - 112 12 - 172

TABLE of CONTENTS

SL no 01 02 03 04 05 06 07 08 08 09 10 11

Contents Letter of Transmittal Acknowledgement Executive summary Objective Methodology Merchant Banking Merchant banking in Bangladesh Merchant Banking In India Comparison of Bangladesh and India Conclusion References Bibliography

Page 4 5 6 7 7 8-10 11-16 16-25 26-46 47 48 53

Date: 19th April, 2011

To Salahuddin Ahmed Khan Professor Department of Finance University 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 Department of Finance University of Dhaka

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.

E X E C U T I V E

Ex ec In banking, a merchant bank is a financial institution primarily engaged in offering financial uti 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. ve The Progress of any economy mainly depends on the efficient financial system of the country. Su This importance of the financial sector reforms affirms an effective means for solving the m 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 ma generation is the lifeblood of the capital market without which the health and soundness of the ry
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.

S U M M A R Y

OBJECTIVES & SCOPES:

The main purpose of this study is to create a bridge between our theoretical knowledge & the practical scenario.

The specific objectives of the study are:

1. To gain an understanding about the Rules of Merchant Banking and

Portfolio mangment
2. To assess the role and contribution of Securities Law 3. To identify the major problems faced by the countries; and 4. To assess the future prospect of the law

METHODOLOGY:

The study is mainly an exploratory one and interview method was used to collect information from primary sources. Attempt was made to acquire relevant information available in the related field. Information has been collected from academic journals, research papers,internet, dse website, , daily newspapers, industry news and developments. A critical evaluation of the existing literatures on the issue is being provided for better understanding and application of the topic under review.

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.

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 trading grain 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 and Exchange 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 of merchant 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, portfolio management, 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 Bankers and 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 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. 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 ICICI Securities IDBI SBI Caps DPS IFCI Bank of Baroda Jardine Fleming JM Finance ENAM PNB Caps OE 4.0 4.2 4.4. 6.1 6.1 6.7 5.8 6.0 6.3 6.8 FSS 4.0 3.2 3.9 5.7 5.7 6.5 6.2 6.5 6.8 6.8 QPS 4.2 4.5 4.6. 6.0 6.0 6.7 5.9 5.5 6.4 6.7 QM 3.8 4.0 6.7 6.0 6.0 6.6 5.0 5.9 6.3 6.8 INN 4.3 4.8 5.2 5.3 6.3 6.8 5.5 5.4 6.2 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 a merchant 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 of the 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 specified in the act. conduct which is not in co ordinance with the code of conduct

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 General Defaults

Penalty points 1

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Minor Defaults Major Defaults Serious Defaults

2 3 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 press notification. listing application by the issuer as required under Govt. of India

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 29

Experiences in Issue Management, Underwriting, Corporate Advising, Portfolio Management Client information Financial information Capital structure Assets Major Sources of Income In INDIA: Application for grant of certificate. List of major shareholders

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 securities market, conviction for any offence involving moral turpitude Can not use Merchant Banker or Merchant Bank or Investment Bank as part of 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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opportunity to remove within the time specified such objections as may be indicated by the Board. (iii)Explanation : For the purposesactivity clause the expression directly or an applicant can carry on the of this as portfolio manager only if he obtains indirectly connected registration under being an associate, Securities and separate certificate ofmeans any person the provisions of thesubsidiary or interconnected or group company of the applicant in case of the applicant being a Exchange Board of India (Portfolio Manager) Regulations, 1993.] body corporate; (3) Notwithstanding anything contained in sub-regulation (1) any application made by (d) the applicant fulfils the capital into force of these regulations containing such a merchant banker prior to comingadequacy requirement specified in regulation 7; particulars or as near partner,as mentioned in Form A shall not treated as an (e) the applicant, his thereto director or principal officer is be involved in any application made in pursuance ofsecurities market whichdealtan adverse bearing on litigation connected with the sub-regulation (1) and has with accordingly. the business of the applicant; Application to conform to the requirements. (f) the applicant, his director, sub-regulation (3) officer has 3, at any time been 4. Subject to the provisions of partner or principalof regulationnot any application, convicted for any offence involving moral not conform to been found guilty of which is not complete in all respects and does turpitude or hasthe instructions any in the form shall be specifiedeconomic offence; rejected : (g) the applicant Board professional qualification from an such application, the applicant registration by thehas the Provided that, before rejecting anyinstitution recognised by the Government in finance, law or business management; shall be given an 13 [(gg) the applicant is a fit and proper person;] (h)(1) An of certificate toathe applicant is and interest of shall be made grant application by person for grant the certificate investors. Furnishing of information, clarificationin of apersonal representation.to the Board 14 [Criteria for fit and proper person. in (1) The 5. Form A. Board may require the applicant to furnish further information or 7 6A. For the purpose ofmatters relevant to thean applicant or the merchant banker is a An application for registration made under activity of a merchant banker for the clarification regarding determining whethersub-regulation (1) shall be fit and proper by a non-refundable application fee as specified in specified in accompanied person the Board may take into account the criteriaSchedule II.] purpose of disposal of the application. Schedule II of theor its principal officer shall, Board of India appear before the Board * The application under sub-regulation (1) shall be made for any one of the (2) The applicant Securities and Exchange if so required, (Intermediaries) Regulations,representation. following categories of the merchant banker namely: for personal 2008.] 15 [Capital adequacy is (a) Category I, application. Consideration ofthat requirement. 7. The(i) to carry on any activity of thereferred to in clause (d) of regulation 6 shall be capital adequacy requirement issue management, which will, inter alia, 6. The Board shall take into account for considering the grant of a certificate, all a net worth of notof preparation of prospectus and other information relating to the consist less than five crore rupees. matters which are relevant to the activities relating to merchant banker and in Explanation: For the purposes of with structure, tie up worth means the final allotment particular issue, determining financial regulation, net of financiers and sum of paidthe applicant complies this the following requirements, namely : up capitaland refund of the subscriptions; and the time of making application under and free reserves of the applicant at 10 [(a) the applicant shall be a body corporate other than a non-banking financial (ii) to act as adviser, consultant, (f) of section 45-I of the Reserve Bank of company as defined under clausemanager, underwriter, portfolio manager; India Act, 1934 is to act as as amended from time to time : (b) Category II, that (2 of 1934), adviser, consultant, co-manager, underwriter, 11 portfolio manager; merchant banker who has been granted registration by the [Provided that the Reserve Bank of is to act act underwriter, adviser, consultant may carry on such (c) Category III, that India to as as a primary or satellite dealer to an issue; activity subject to the act only that it shall not accept to an public (d) Category IV, that is to conditionas adviser or consultantor holdissue. deposit;] 12 8 [(aa)]the applicant has the necessary infrastructure like adequate office space, *Notwithstanding anything contained in this regulation, with effect from 9th equipments, and manpower to effectively discharge his activities; December, 1997: (b) the applicant has in his employment minimum of two persons who have the (i) an application under sub-regulation (2) merchant banker; for carrying on the experience to conduct the business of can be made only activities mentioned in clause (a) therein, and (c) a person directly or indirectly connected with the applicant has not been granted sub-regulation (1) of regulation 3

CAPITAL ADEQUECY REQUIREMENT IN BANGLADESH

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procedure for registration. The Board, on being satisfied that the applicant is eligible, shall grant a The Board, on being satisfied that the applicant is eligible, shall grant a certificate in Form B 16[* * *].Capital Adequacy Requirement( Added June 16 2008)
Applicant for Merchant Banker need to have Paid up capital of 100 million & (4) On the grant of a certificate the applicant shall be liable to pay the fees 19 [* * *] in accordance with Schedule II. 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 10 million In underwriting then paid up capital shall be 50 million Portfolio management, issue management & underwriting then paid up capital 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

The capital adequacy requirement referred to in clause (d) of regulation 6 shall be this notification
Paid up capital For the purposes of this regulation, net worth means the sum of paidup capital and free reserves of the applicant at the time of making application under 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
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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


accordance with Schedule II

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 subregulation (1), read with Schedule II, the Board may suspend the registration
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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 where the A/C books, record and documents are kept. All books of A/C, records and documents under the rules have to reserve 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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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 accounting period

Submission of Information

Any change in the previously submitted information Names of the companys issues that he managed or companys issues with which he was related Any deviation in capital adequacy Quarterly Unaudited report Books of account must be audited and remove any deficiency with in 60 days after receiving the auditors report

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Restriction on Share Acquisition Must not enter into any transaction of securities on the basis of unpublished price sensitive information obtained during the course of any professional assignment

No merchant banker, or any of its director, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction of securities on the basis of unpublished price sensitive information during the course of any professional assignment. Any officer appointed by the merchant banker and portfolio manager shall not be the officer of mutual fund, stock dealer or stock broker

(c) a statement of financial position.

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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Responsibilities of lead managers.to act as primary or satellite dealer by Reserve 20. (1) 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 such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription:Bank of India, may carry on such business as may be Provided that, where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant bankers shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board at least one month before the opening of the issue for subscription.permitted by the Reserve Bank of India Lead merchant banker not to associate with a merchant banker without registration.Provided further that a merchant banker, who has been granted certificate of 21. A lead merchant banker shall not be associated with any issue if a merchant banker who ismerchant banker shall keep and maintain the following books of (1)Every not holding a certificate is associated with the issue. 37 account, records and documents such for : associate.registration under these [Merchant banker not to act as namely an (a) a copy of balance sheet as at the end of the each accounting period; 21A. (1) A merchant banker shall not lead manage any issue or be associated with any a copy of profit and under any regulations made by the Board, if he is a promoter (b) activity undertaken loss account for that period; or a director or an associate of the issuer of securities or of any person making an offer to sell or purchase securities in terms of any regulations made by the Board: Provided that a merchant bankerintimatean associate of such issuer or the books of (2) Every merchant banker shall who is to the Board the place where person may be appointed, if he is involved only in maintained. of the issue or offer. account, records and documents are the marketing Explanation: For the purposes of this regulation, a merchant banker shallafter the (3) Without prejudice to sub-regulation (1), every merchant banker shall, be deemed to be an associate of the issuer or person if: end of each accounting period furnish to the Board copies of the balance sheet, (i) profit either of them controls, directly or documents for anyits subsidiary or holding and loss account and such other indirectly through other preceding five company, not less required by the Board. the voting rights in the other; or accounting years when than fifteen per cent. of (ii) either of half-yearly results. indirectly, by itself or in combination with other Submission of them, directly or persons, exercises control over the other; or 15. Every merchant banker shall furnish to the Board half-yearly unaudited financial (iii) there is required by director, excluding nominee director, amongst the issuer, its results when a common the Board with a view to monitor the capital adequacy of the merchant banker. Maintenance of books of account, records and other documents.regulations, may 16. The merchant banker shall preserve the books of account and other records and documents maintained under regulation 14 for a minimum period of five years. Report on steps taken on auditors report.ensure market making in accordance with 17. Every merchant banker shall, within two months from the date of the auditors report, take steps to rectify the deficiencies made out in the auditors report. 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.


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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 amended regulations.

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 any receipts (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 the premises 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 in the 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 relevant for 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 merchant banker. 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 connection with 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 the Commission within 60 (sixty) days from the beginning of the inspection but Indian regulations do not mention any such certain time. The regulations of Bangladesh also requires 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 invalid or 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 of the 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 may appeal to re-consider the order within a certain time period if they are unsatisfied.

Chapter Eight Code 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 the interests 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 regulatory system.

Dissimilarities: The regulations of India regarding Merchant Banker and Portfolio Manager are quite vast than of Bangladesh. 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 of Control 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 / Portfolio Manager 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 of its 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 priceearning ratio of above 40 (15 June 2010) All corporate benefit, such as dividend, bonus, rights etc. entitled according to book closure/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 Margin Loan 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 account for 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 by underwriting 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 48

THANK YOU

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