Merchant Banking

A merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. It is now mandatory that all public issue should be managed by Merchant bankers functioning as the lead managers. The major activities undertaken by merchant banks are Sponsors of Capital Issue Determining the composition of the capital structure(Types of securities to be issued) Draft of prospects (Offer document) and application form. Compliance with procedural formalities Appointment of Registrars & Transfer agents to deal with share application Listing of securities Arrangement of underwritings Placing of issue Selection of brokers and bankers to the issue. Publicity and advertising agents Printing of the application forms.

Category of Merchant Bankers I Advisors Consultant Managers Underwriters Portfolio managers 2.5 lacs (Two years) 5 Crore II Advisors Consultant Co Mangers Underwriters Portfolio Manager III Advisors Underwriter Consultants to an issue IV Advisors Consultant to an issue

1.5 lacs(Two 1 lacs (Two years) years) Capital Adequacy Requirement 0.5 Crore 0.2 Crore

5000 Rs(Two years) Nil

Underwriters
Underwriters to issues of capital who agree to take up securities which are not fully subscribed. They make a commitment to get the issue subscribed either by others or by themselves. Underwriters are appointed by the issuing companies in consultation with the lead managers/merchant bankers to the issues. It is necessary for a lead manager to accept a minimum underwriting obligation of 5 percent of the total underwriting commitment or Rs 25 lakh.

Bankers to an Issue
The bankers to an issue are engaged in activities such as acceptance of applications along with applications application money from the investors in respect of issues of capital and refund of application money.

Code of Conduct for Merchant Bankers Make all efforts to protect the interest of investor Maintain high standards of integrity, dignity and fairness in the conduct of its business Fulfill its obligations in a prompt, ethical and professional manner. Ensures that adequate disclosures are made to the investors in a timely manner in accordance with applicable regulations and guidelines. Copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue of offer. Always Endeavour to render the best possible advice to the clients having regard to their needs. Ensures that good corporate policies and corporate governance are in place. Ensures that any person it employs or appoints to conduct business is fit and proper /qualified to act in the capacity Demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description. Maintains arms length relationship between its merchant banking activity and any other activity.