SEBI Guidelines for Merchant Bankers

                                   What is Merchant Bank

Introduction :

Merchant banking is the direct, negotiated investment of private money into privately or publicly held companies by financial institutions or professional investors. The investors make private placements of equity and, in return, receive private stock that is not registered with financial regulators for trading on an exchange. In a way, they are becoming financial partners of the companies.

Merchant banking has been statutorily brought within the framework of the "Securities and Exchange Board of India".

Definition :

Any person who is engaged is the business of the issue management either by making arrangements selling, buying or subscribing to the securities of manager, consult adviser, or one rendering  corporate advisory service in the relation to such activities to the management. 

Guidelines for  merchant  banking :

A merchant banker will require authorization by SEBI to carry out the business.

SEBI has classified the merchant bankers into four categories based on the nature and range of the activities and the responsibilities.  

Category I:  It consists of  merchant bankers who carry on the business of issue management which consists of preparation of issue management which consists of preparation of prospectus, determining the financial structure, tie-up of the financiers and final allotment/refund of subscription and  to act in the capacity of managers, advisors or consultants to an issue, portfolio manager and underwriter. 

 Minimum networth required is  Rs. 1 crore.

Category II: It consists of those authorized  to act in the capacity of co-manger/advisor, consultant underwriter to an issue.

 The Minimum networth required is Rs. 50 Lakhs.

Category III: It consists of those authorized to act  as underwriter, advisor or consultant to an issue.

 The Minimum networth  required is Rs. 20 Lakhs.

Category IV: It consists of Merchant Banker who act as advisor or consultant to an issue.

 There is no Minimum networth required.

Every merchant banker should maintain copies of balance sheet,Profit and loss account,statement of financial position 

Half-yearly unaudited result should be submitted to SEBI

SEBI has been vested with the power to suspend or cancel the authorization in case of violation of the guidelines

Every merchant banker shall appoint a ‘Compliance Officer‘ to monitor compliance of the Act

SEBI has the right to send inspecting authority to inspect books of accounts,records etc… of merchant bankers

Inspections will be conducted by SEBI to ensure that provisions of the regulations are properly complied.

An initial authorization fee,an annual fee and renewal fee may be collected by SEBI.

A lead manager holding a certificate under category I shall accept a minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less