SEBI INTERMEDIARY - MERCHANT BANKERS
SEBI INTERMEDIARY - MERCHANT BANKERS
The Securities and Exchange Board of India (‘SEB I’ for short), with the approval of the Central Government made SEBI (Merchant Bankers) Regulations, 1992 and published the same in the Official Gazette vide Notification No. LE/11112/92, dated 22.12.1992. The provisions of these regulations came into effect from 22.12.1992.
The expression ‘merchant banker’ is defined under Regulation 2(1)(cb) as 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.
Categories of Merchant banker
The merchant banker is of 4 categories as detailed below-
An application by a person for grant of a certificate of registration shall be made to the Board in Form A accompanying a fee of Rs.20 lakhs and a non refundable fee of Rs.50,000/-. The said fee is to be paid within 15 days from the date of receipt of intimation from the Board. With effect from 09.12.1997 the applicant has to apply for the Category I.
The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. The applicant or its principal officer shall, if so required, appear before the Board for personal representation.
The Board shall grant of certificate subject to the following-
The Board, on being satisfied that the applicant is eligible, shall grant a certificate of registration in Form B. The certificate of registration is valid unless it is suspended or cancelled by the Board. From the date of receipt of the communication, shall not carry on any activity as a merchant banker:
Rejection of application
If the application is not complete in all respects and does not conform to the instructions specified in the form shall be rejected after giving the applicant a reasonable opportunity to remove the objections raised by the Board within the specified time. The refusal to grant registration shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected. Any applicant may, being aggrieved by the rejection of certified apply within a period of 30 days from the date of receipt of such intimation to the Board for reconsideration of its decision. The Board shall reconsider an application made and communicate its decision as soon as possible in writing to the applicant.
Any applicant, whose application for grant of a certificate of permanent registration has been refused by the Board, on and from the date of receipt of the communication, shall not carry on any activity as a merchant banker. The Board may, in the interest of investors in the securities market, permit the merchant banker to carry on activities undertaken prior to the receipt of the intimation of refusal subject to such condition as the Board may specify.
Suspension of registration
Where a merchant banker fails to pay the required annual fees the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists.
Obligations of merchant banker
The following are the obligations entrusted by the Regulations on the merchant bankers-
The merchant banker shall preserve the books of account and other records and documents maintained for a minimum period of 5 years.
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. 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 1 month before the opening of the issue for subscription.
A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue.
A merchant banker shall not lead manage any issue or be associated with any activity undertaken under any regulations made by the Board, if he is a promoter 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 banker who is an associate of such issuer or person may be appointed, if he is involved only in the marketing of the issue or offer.
The term ‘underwriting’ is defined under Regulation 2(1)(h) as an agreement to subscribe to or procure subscription for securities, issued or offered for sale, remaining unsubscribed. In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum underwriting obligation of 5% of the total underwriting commitment or Rs.25 lakhs, whichever is less.
A merchant banker acting as an underwriter shall not derive any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under the agreement for underwriting entered with client. At any point of time, the total underwriting obligations under all the agreements shall not exceed 20 times of the net worth of the merchant banker. Every merchant banker, acting as an underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement for underwriting, shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.
Agreements with clients
Every merchant banker acting as an underwriter shall enter into an agreement with each body corporate on whose behalf it is acting as an underwriter and the said agreement shall, amongst other things, provide for the following-
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.
Information to SEBI
Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction.
Disclosures to SEBI
A merchant banker shall disclose to the Board, as and when required, the following information-
Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Board or the Central Government and for redressal of investors’ grievances. The compliance officer shall immediately and independently report to the Board any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on/in the draft prospectus or the letter of offer as the case may be, do not recur.
All claims, differences or disputes between a merchant banker and its client arising out of or in relation to the activities of the merchant banker in the securities market shall be submitted to a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration, in accordance with the procedure specified by the Board.
The Merchant Banker shall redress investor grievances promptly but not later than 21 calendar days from the date of receipt of the grievance and in such manner as may be specified by the Board. The Board may also recognize a body corporate for handling and monitoring the process of grievance redressal within such time and in such manner as may be specified.
The Board may appoint one or more persons as inspecting authority to undertake inspection of the books of account, records and documents of the merchant banker for any of the following purposes -
The Board shall give a reasonable notice to the merchant banker for that purpose. During the course of inspection the merchant banker shall give access to the premises occupied by the merchant banker and also extend necessary facility for examining any books and documents. The merchant banker shall also extend its assistance to the inspection authorities.
The inspecting authority shall, as soon as may be possible submit, an inspection report to the Board. The 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 including action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
The Board may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant bankers.
A merchant banker who contravenes any of the provisions of the Act, Rules or Regulations framed there under shall be liable for one or more actions specified therein including the action under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
By: Mr. M. GOVINDARAJAN - September 4, 2023