Issue Management

:Intermediaries

Management of Financial
Services

INTERMEDIARIES
MERCHANT BANKERS/LEAD MANAGERS
UNDERWRITERS
BANKERS TO AN ISSUE
BROKERS TO THE ISSUE
REGISTRARS AND SHARE TRANSFER AGENTS
DEBENTURE TRUSTEES
PORTFOLIO MANAGERS

Introduction
Prior to 1992, the new issue market activity
was controlled by the Controller of Capital
Issues under the Capital of Controller Issues
Control Act 1947.
Post 1992 the protection of the interest of the
investors, regulation and of the market activity
and promotion and development has become
the responsibility of Securities and Exchange
Board of India .(SEBI).

Merchant Bankers
Major services :
Composition of capital structure
Draft of prospectus and Application forms
compliance with procedural formalities.
Appointment of registrars
arrangement of underwriters
Selection of brokers and bankers
arranging publicity and advertising etc.

SEBI guidelines for

Merchant Bankers
Registration
under 4 categories
compulsory
Category 1 - prospectus, other information preparation,
financial structure , tie up of financiers, final allotment of
securities , refund of subscription , act as advisors,
consultants, and underwriters or portfolio managers.
Grant of Certificate
on compliance of following requirements

SEBI guidelines for

Merchant Bankers
Body corporate other than NBFC.
Adequate office space, equipment and manpower.
Atleast two persons with experience in merchant
banking
Should not be associated with the applicant as
associate/subsidiary/group company etc.
directors/officer - not involved in any litigation with the
securities market.
Directors/officers with professional qualification in
finance/law/business management.

SEBI guidelines for

Merchant Bankers..
Capital Adequacy Requirement

Dependant on category
Rs.5 crore for category I
Rs.0.5 crore for 2
Rs.0.2 crore for 3
Nil for 4.

Registration Fee
paid at the time of original registration
again amount dependant on category

SEBI guidelines for

Merchant Bankers
Registration fee ..
Application Fee : Rs.25000
Registration Fee: Rs. 10 lakhs
Renewal Fee : Rs.5 lakhs every three
years , starting from the 4th year.

Merchant Bankers .. Code

of conduct.

Protect interest of investors

integrity, dignity and fairness
Fulfill obligations in prompt, ethical and professional manner
Ensure Investor inquiries and grievances handled on time and
appropriate manner
adequate disclosures to investors as per guidelines
No discrimination amongst clients.
Copies of prospectus and offer letter to all investors at time of offer
of issue.
Best advice to clients.

No divulgence of confidential information

SEBI guidelines for

Merchant Bankers,...
Restriction on Business
prohibited from carrying on fund/asset business.(except banks and
PFIs)
If registered with RBI as primary dealer/Satellite Dealer than may
carry on such business as permitted by RBI.
Maximum no. of lead managers
related to size of the issue.
Less than Rs.50 crore - 2 lead managers
Between Rs.50 - Rs.100 crore - 3 lead managers.
Rs 100-200 crores - 4 lead managers
Rs. 200 -400 crores - 5 lead managers
above 400 - more than 5 lead managers

SEBI guidelines for

Merchant Bankers,...
Responsibilities of Lead managers
agreement with issuing companies for mutual rights, obligations for
issues , allotment and refund.
Statement to SEBI of these details , 1 mth before issue. Statements
of obligations of other associates also to be furnished.
Cannot associate with a merchant banker who has not registered
with SEBI.
Minimum underwriting commitment Rs. 25 lakhs / 5% of total
underwriting commitment has to be accepted.
If cannot manage the underwriting amount then has to arrange
equal amount through other associate lead managers.

SEBI guidelines for

Merchant Bankers,...
Due Diligence Certificate:
has to submit to SEBI two weeks before issue
details regarding the offer letter/prospectus conformity
with the papers , materials relevant to the issue.
All disclosures are true, fair and adequate to enable
investors to take well informed balanced decision.
Submission of documents
all documents like prospectus, offer letter, other particulars to be
submitted to SEBI before 2 weeks of issue.
If any recommendations made by SEBI, they should be duly
incorporated .

SEBI guidelines for

Merchant Bankers,...
Acquisition of shares : not to acquire shares on
the basis of the unpublished sensitive
information, during course of any professional
assignment . To inform SEBI , if done, within 15
days of transaction.

Inspection :
Inspection by SEBI at any time.
All records, documents, computer date to be provided to
inspector.
All provisions on inspection report to be complied with.

SEBI guidelines for

Merchant Bankers...
Action in Case Of Default
Suspension of Registration
Cancellation of Registration
Suspension : in cases of ;
failure to furnish any information as required by SEBI, non
submission of periodical returns, failure to resolve complaints,
misconduct with reference to prescribed code of conduct. Fails to
pay fees, violates conditions of registration.

SEBI guidelines for

Merchant Bankers...
Cancellation of Registration :
indulges in deliberate manipulation/price
rigging affecting the securities market.
Poor financial position of merchant banker
is guilty of fraud, or convicted of a
criminal offence .

Pre Issue and Post Issue

Obligations

Due Diligence in Offer documents

Requisite fee along with offer document
to SEBI.
Submission of documents of issue .(MOU , INTER-SE
allocation of responsibilities etc)
Appointment of Intermediaries
Underwriting
Offer document made public
Pre Issue Advertisement(english, hindi and regional
language news paper)
IPO Grading
Dispatch of issue material
Authorised Collection Agents.

Underwriters
Make commitment to get the issue subscribed either by
others or by themselves.
Appointed by issuing companies in consultation with
lead managers
Also have to undergo registration with SEBI , and pay
registration fee to the SEBI. Rs.2 lakhs for first 2yrs,
Rs.1 lakh for third year. Renewal fee Rs.2 lakhs every
three years from 4th year.

Underwriters
Code of conduct.
Agreement with clients :
It provides for the period of agreement,
amt. of underwriting obligations, period
within which he has to subscribe to the
issue, amt. of commission and details of
arrangements he has made any, for
fulfilling the underwriting obligations.

Underwriters..
General Responsibilities :
Cannot derive any other benefit from the
underwriting , except underwriting
commission.
Underwriting obligations cannot exceed
20 times his networth.
They have to subscribe for securities
under the agreement , within 45 days of
intimation

Bankers to an Issue
Activities include accepting application forms, along with the application money from
investors and refund of application money.
Registration
General Responsibilities ;
- furnish information to SEBI regarding no. of issues handled by them, no. of
applications received, details of application money received and dates on which the
application money is forwarded to the issuing company, and refund dates.
Books of Accounts/Documents:
To be maintained for a minimum of 3 yrs .
Details regarding application money received, the names of investors, the time
within which the same is forwarded to the issuing company , dates & amts. Of
refund to investors.
Disciplinary Action by RBI
If RBI takes disciplinary action against the Bank for handling issue payments, the
bank has to inform the same to SEBI.
If bank has been prohibited from carrying on its activities by RBI, the SEBI
registration automatically gets cancelled.

Brokers to the Issue

Mainly concerned with procurement of subscription to
the issue from the investors.
Appointment of brokers not compulsory, and cos. Free
to appoint any no. of brokers.
Appointment of brokers after consent of the stock
exchange, where they are active members. So merchant
bankers appoint brokers in consultation with the stock
exchange and obtains their consent to act as brokers
for the issue.
Therefor entry of brokers is restricted for unknown
agencies in the field of new issue activity .

Brokers to the Issue...

A copy of the consent letter is to be sent along with the
prospectus to the ROC.
Names and addresses of the brokers to be disclosed in
the prospectus.
Brokerage to be paid within limits prescribed, where the
rate applicable to the public issue of industrial securities
is 1.5%, whether the issue is underwritten or not.
mailing cost and out of pocket expenses for canvassing
of issue to be borne by the broker.

Brokers to the Issue...

Brokerage not allowed in the foll. Cases:
In respect of subscription by directors, their friends and employees,
Rights issue renounced by the existing shareholders
Subscriptions by the institutions/bankers against their underwriting
commitments .
Brokerage is payable by the issuing company within two months of
the date of allotment and furnish on request , to the broker, the
details regarding allotment made against applications bearing their
stamp.
Brokerage is to be paid to brokers through cheques payable at par
at all centres, where recognized stock exchanges are situated.

Registrars to an issue and

share transfer agents
Carrying on activities such as collecting
application from the investors, keeping a
proper record of applications, and money
received from investors, and assisting cos
in determining the basis of allotment of
securities, finalizing allotment, processing
and dispatching allotment letters, refund
orders, certificates and other related
documents in respect of the issue.

Registrars to an issue and

share transfer agents
Capital adequacy and Fee
networth of Rs.6 lakh and Rs.3 lakh for Category 1 and
2 respectively.
Not applicable to a department of a body corporate
maintaining records of holders of securities and dealing
with transfer/redemption of securities.
Annual fees RS.50000 and Rs.30000 for the two
categories respectively.
Renewal fees for them are Rs.40000/- and Rs.25000/respectively , for every three years.

Registrars to an issue and

share transfer agents
Maintenance of Records:
They have to maintain records relating to all applications
received from investors , all rejected applications, basis
of allotment of securities in consultation with stock
exchanges, list of allotees, refund orders, and so on.
In addition the names of transferors and transferees,
dates of transfer of securities.
Inspection :
SEBI authorized to take up inspection, of books of
accounts and documents of registrars, investigate
complaints from investors/other registrars, in the
interest of the investors.

Debenture Trustees
A debenture trustee is a trustee for a trust deed needed
for securing any issue of debentures by a company/body
corporate.
A trust deed is a deed executed by a co. in favour of the
trustees named therein for the benefit of the debenture
holders.
Only banks, public financial institutions, insurance cos
and other cos. Fulfilling the capital adequacy
requirement in terms of networth minus aggregate value
of accumulated losses , can act as Debenture Trustees.

Debenture Trustees
To act as debenture trustees :
Certificate of registration from SEBI is necessary.
Adequate office space, equipment and manpower to effectively discharge
duties.
Employment of atleast one person who possesses the professional
qualification in law from govt. recognized institution.
Directors/principal officers should not be convicted of any economic offence
and is a fit and proper person.
The initial registration is for 3 yrs and renewable before
3 mths before date of expiry.

Registration fee Rs.5 lakh and renewal fee Rs.2.5 lakh every
three years.

Debenture Trustees
Take possession of the trust property.
Debenture certificates discharges within 30 days of
creation of charge .
Ensure on a continuous basis that the property available
to debenture holders is adequate and free from
encumbrances.
Appropriate measures to protect interests of the
debenture holders , on breach of the trustee deed law.
Interest warrants have been issued to debenture
holders on/before due dates.

Portfolio Managers
The term portfolio means holding of securities belonging
to any person.
Portfolio management is the advising/undertaking the
management of a portfolio of securities of clients on
behalf of the clients .
It could be discretionary or non discretionary.
Discretionary : investment of securities at the discretion
of the firm
Non discretionary : investment of securities only on the
directions of the clients.
Registration compulsory for all, except Category I &II
Merchant bankers.

Portfolio Managers.
Investment of clients Money :
should not accept money or securities from clients for period
less than 1 yr. All renewal of portfolio fund on maturity ,
treated as fresh placement for 1yrear.
Investment can be done in money market investments, but not
in bill discounting, badla financing, lending/placement with
corporate or non corporate bodies.
No investments where the actual settlement is otherwise than
by actual delivery of the securities.
All purchases and sale of securities separately for each client.

Portfolio Managers.
Disclosures to SEBI:
management of portfolio
any change in information previously
given, which might affect the certificate
granted to them
names of clients.
Particulars regarding capital adequacy
requirement.