issue mgmt 1

8/10/2019 Issue Mgmt 1

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INTERMEDIARIES

MERCHANT BANKERS/LEAD MANAGERS

UNDERWRITERS

BANKERS TO AN ISSUEBROKERS TO THE ISSUE

REGISTRARS AND SHARE TRANSFER AGENTS

DEBENTURE TRUSTEESPORTFOLIO MANAGERS


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Introduction

Prior to 1992, the new issue market activitywas controlled by the Controller of Capital

Issues under the Capital of Controller IssuesControl Act 1947.

Post 1992 the protection of the interest of theinvestors, regulation and of the market activity

and promotion and development has becomethe responsibility of Securities and ExchangeBoard of India .(SEBI).


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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.


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SEBI guidelines for

Merchant Bankers

Registration under 4 categories

compulsory Category 1 - prospectus, other information preparation,

financial structure , tie up of financiers, final allotment ofsecurities , refund of subscription , act as advisors,

consultants, and underwriters or portfolio managers. Grant of Certificate

on compliance of following requirements


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SEBI guidelines for

Merchant Bankers

Body corporate other than NBFC.

Adequate office space, equipment and manpower.

Atleast two persons with experience in merchantbanking

Should not be associated with the applicant asassociate/subsidiary/group company etc.

directors/officer - not involved in any litigation with thesecurities market.

Directors/officers with professional qualification infinance/law/business management.


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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 Feepaid at the time of original registration

again amount dependant on category


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SEBI guidelines for

Merchant Bankers

Registration fee ..

Application Fee : Rs.25000

Registration Fee: Rs. 10 lakhs

Renewal Fee : Rs.5 lakhs every threeyears , starting from the 4thyear.


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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 andappropriate 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.


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SEBI guidelines for

Merchant Bankers,...

Restriction on Business

prohibited from carrying on fund/asset business.(except banks andPFIs)

If registered with RBI as primary dealer/Satellite Dealer than maycarry 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


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SEBI guidelines for


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. Statementsof obligations of other associates also to be furnished.

Cannot associate with a merchant banker who has not registeredwith SEBI.

Minimum underwriting commitment Rs. 25 lakhs / 5% of totalunderwriting commitment has to be accepted.

If cannot manage the underwriting amount then has to arrangeequal amount through other associate lead managers.


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SEBI guidelines for


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 besubmitted to SEBI before 2 weeks of issue.

If any recommendations made by SEBI, they should be dulyincorporated .


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SEBI guidelines for


Acquisition of shares: not to acquire shares onthe basis of the unpublished sensitiveinformation, during course of any professionalassignment . To inform SEBI , if done, within 15days of transaction.

Inspection : Inspection by SEBI at any time.

All records, documents, computer date to be provided toinspector.

All provisions on inspection report to be complied with.


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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, nonsubmission of periodical returns, failure to resolve complaints,

misconduct with reference to prescribed code of conduct. Fails topay fees, violates conditions of registration.


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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 .


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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 regionallanguage news paper)

IPO Grading

Dispatch of issue material

Authorised Collection Agents.


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Underwriters

Make commitment to get the issue subscribed either byothers or by themselves.

Appointed by issuing companies in consultation with

lead managersAlso 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.


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Underwriters

Code of conduct.

Agreement with clients :

It provides for the period of agreement,amt. of underwriting obligations, periodwithin which he has to subscribe to the

issue, amt. of commission and details ofarrangements he has made any, forfulfilling the underwriting obligations.


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Underwriters..

General Responsibilities :

Cannot derive any other benefit from the

underwriting , except underwritingcommission.

Underwriting obligations cannot exceed20 times his networth.

They have to subscribe for securitiesunder the agreement , within 45 days ofintimation


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Bankers to an Issue

Activities include accepting application forms, along with the application money frominvestors 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 theapplication 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. Ofrefund 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.


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Brokers to the Issue

Mainly concerned with procurement of subscription tothe 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 merchantbankers appoint brokers in consultation with the stock

exchange and obtains their consent to act as brokersfor the issue.

Therefor entry of brokers is restricted for unknownagencies in the field of new issue activity .


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Brokers to the Issue...

A copy of the consent letter is to be sent along with theprospectus to the ROC.

Names and addresses of the brokers to be disclosed inthe prospectus.

Brokerage to be paid within limits prescribed, where therate applicable to the public issue of industrial securitiesis 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.


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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 underwritingcommitments .

Brokerage is payable by the issuing company within two months ofthe date of allotment and furnish on request , to the broker, thedetails 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.


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Registrars to an issue and

share transfer agents

Carrying on activities such as collectingapplication from the investors, keeping a

proper record of applications, and moneyreceived from investors, and assisting cosin determining the basis of allotment ofsecurities, finalizing allotment, processingand dispatching allotment letters, refundorders, certificates and other relateddocuments in respect of the issue.


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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 corporatemaintaining records of holders of securities and dealingwith transfer/redemption of securities.

Annual fees RS.50000 and Rs.30000 for the twocategories respectively.

Renewal fees for them are Rs.40000/- and Rs.25000/-respectively , for every three years.


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Maintenance of Records: They have to maintain records relating to all applications

received from investors , all rejected applications, basisof 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 ofaccounts and documents of registrars, investigatecomplaints from investors/other registrars, in theinterest of the investors.


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Debenture Trustees

A debenture trustee is a trustee for a trust deed neededfor securing any issue of debentures by a company/bodycorporate.

A trust deed is a deed executed by a co. in favour of thetrustees named therein for the benefit of the debentureholders.

Only banks, public financial institutions, insurance cos

and other cos. Fulfilling the capital adequacyrequirement in terms of networth minus aggregate valueof accumulated losses , can act as Debenture Trustees.


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Debenture Trustees

To act as debenture trustees : Certificate of registration from SEBI is necessary.

Adequate office space, equipment and manpower to effectively dischargeduties.

Employment of atleast one person who possesses the professionalqualification in law from govt. recognized institution.

Directors/principal officers should not be convicted of any economic offenceand 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 everythree years.


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Debenture Trustees

Take possession of the trust property.

Debenture certificates discharges within 30 days ofcreation of charge .

Ensure on a continuous basis that the property availableto debenture holders is adequate and free fromencumbrances.

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.


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Portfolio Managers

The term portfolio means holding of securities belongingto any person.

Portfolio management is the advising/undertaking themanagement 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 discretionof the firm

Non discretionary : investment of securities only on thedirections of the clients.

Registration compulsory for all, except Category I &IIMerchant bankers.


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Portfolio Managers.

Investment of clients Money:

should not accept money or securities from clients for periodless 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 notin bill discounting, badla financing, lending/placement withcorporate or non corporate bodies.

No investments where the actual settlement is otherwise thanby actual delivery of the securities.

All purchases and sale of securities separately for each client.


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Portfolio Managers.

Disclosures to SEBI:

management of portfolio

any change in information previouslygiven, which might affect the certificategranted to them

names of clients.Particulars regarding capital adequacy

requirement.