Professional Documents
Culture Documents
Investment Banking
Investment banking
An investment bank is a financial institution that assists
individuals, corporations, and governments in
raising capital by underwriting or acting as the client's agent in
the issuance of securities (or both).
Portfolio
Raise Capital
Management
M&A Research
Functions of Investment Banks
Arranges financing for corporations and governments. Such as
Debt, Equity, Convertibles & so on.
Advises on mergers and acquisitions (M&A) transactions.
Asset Management Business
E.g. Offers equity, fixed income, alternative investments,
and money market investment products and services to
individual and institutional clients
For alternative investment products, the firm co-invests
with clients in hedge fund, private equity and real estate funds
Functions of Investment Banks
Client Trading
Sells and trades securities
and other financial assets as
intermediary on behalf of
investing clients.
Proprietary Trading
Investment activity by the
firm that affects the firm's
accounts, but does not
involve investing clients.
Investment Banking In India
SBI was the first Indian public sector bank to set up its investment
banking division in 1972.
SBI Caps and IDBI Caps are two prime examples of investment
banks in India today.
Currently, there are 300 investment banks registered with SEBI.
Currently, without holding a certificate of registration
granted by the Securities and Exchange Board of India, no person
can act as a investment banker.
Structure of Investment Banking
Investment banks are organized into 3 categories.
Front Office
Helping customers raise funds in the capital markets and
advise on mergers and acquisitions
professional management of various securities and other
assets
Buying and selling financial products with the goal of
making money on each trade
Creating and marketing financial products
Researching industries, companies, and products
Structure of Investment Banking
Middle Office
Analyzing credit and market risk for the organization
Making sure operations are complying with regulations
Responsible for capital management and risk monitoring
Back Office
Operations involves data-checking trades that have
been conducted, ensuring that they are not erroneous, and
transacting the required transfers.
Types of Investment banking
Full-Service Firms- These are type of investment banks who
have significant presence in all areas like underwriting, Merchant
Banking, M&A, Securities services, structured instruments, asset
management etc. They are all rounder of the game.
Examples of such banks include Goldman Sachs, Morgan Stanley,
Credit Suisse, etc
.
Types of Investment banking
Boutique Firm
small investment banks that focus in their business on particular
segments.
In other words, they specialize in specific activities of investment
banking.
Usually they are interested in smaller deals, which are worth less
than a billion dollars or so (i.e., mid-market deals).
They also provide financial advice on mergers and acquisitions
deals, private placements, and initial public offerings.
Typically, boutique investment banks have one or two offices and
may focus on providing advisory services for specific geographic
regions.
They usually have their activities concentrated on the sell side.
Types of Investment banking
Regional Investment Bank
As the name implies, regional investment banks typically focus on
a certain area or region.
These firm will have multiple offices with a national presence.
Some banks may even have operation in many different countries.
Deal for regional investment banks can be comparable in size to
the bulge bracket i-banks but often they will be less than $1 billion.
Typical deal size will be higher than the boutiques and range
between $100 million to $1 billion in enterprise value.
Investment Banking Services
Non- Fund Based
Fund Based
Management of public offers of equity & debt
Underwriting
instruments.
Market making
Buy back offers.
Bought out deals
Advisory & transaction service in Project
Investment in primary market
financing, Syndicate loan
Venture capital, Private equity
Private placements of equity & debt
Business advisory & structuring
Financial restructuring
Corporate reorganizations such as Merger &
acquisition, asset sales, sell-off & exit etc.
Acquisition & takeovers
Government disinvestments & privatization
Asset recovery agency services
Support services
Non Fund Based Fund Based
Secondary market services Venture capital
Stock broking Private equity
Derivative product Asset management
Portfolio Management Proprietary trading & dealing in
Sales & distribution securities.
Equity research
DEFINITION OF MB
According to the SEBI (Merchant Bankers) Rules, 1992,
A merchant banker has been defined 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
services in relation to such issue management.
Merchant Banking
8) Proportionate-allotment Procedure
An allotment shall be made on a proportionate basis within the
specified categories . The proportionate allotments of securities
in an issue, that is oversubscribed shall be subject to reservation
for the retail individual investors as described in the following:
1. A minimum 50% of the net offer of securities to the public shall
initially be made available for the allotment to retail
individual investors as the case may be .
2.the balance net offer of securities to the public shall be made
available for allotment to:
a) individual applicants other than retail individual investors
b) other investors including corporate bodies/ institutions ,
irrespective of the number of shares, debentures and so on , applied
for.
3) The unsubscribed portion of the net offer to any one of the
categories may be made available for allotment to applicants in the
other category, if so required
Due Diligence
The term due diligence is used generally refer to the process of
investigating a companys business, legal and financial affairs
So Due diligence is an investigation of a business or person prior
to signing a contract, or an act with a certain standard of care.
Government of India
Ministry of
Finance Ministry of Ministry of
Corporate Commerce & RBI
Affairs Industry
Department of
Economic
Affairs
Department of
Registrar of
Industrial Policy
FIPB SEBI Companies
& Promotion
Key Regulatory Authorities
Department of Economic Affairs
Formulates and implements policies relating to the securities
market, including under the Securities Contracts (Regulation)
Act, 1957
Ministry of Corporate Affairs
Responsible for administration of the Companies Act, 1956
Operates the Investor Protection Cell which provides a
mechanism for facilitating the redress of investor grievances
Slide 33
Key Regulatory Authorities
Reserve Bank of India
The monetary authority of India
Frames policies relating to movement of foreign exchange /
investments by non resident investors
FIPB
Considers and approves foreign direct investment proposals that
do not fall under the automatic route for foreign investment
Slide 34
Scope of Key Regulatory Authorities
SEBI RBI
Registrar &
Broker Merchant Depository Primary
Participants
Transfer
Dealers Bankers Dealers
Agents
SEBI Guidelines for merchant banking
1. The merchant banking activity in India is governed by SEBI
(merchant bankers) regulations, 1992. Registration with SEBI is
mandatory to carry out the business of merchant banking in India.
An applicant should comply with the following norms:
I) The applicant should be a corporate body.
Ii) The applicant should not carry on any business other than those
connected with the securities market.
Iii) The applicant should have necessary infrastructure like office space,
equipment, manpower, etc.
Iv) The applicant must have at least two employees with prior experience
in merchant banking.
V) Any associate company, group company, subsidiary or interconnected
company of the applicant should not have been a registered merchant
banker.
Vi) The applicant should not have been involved in any securities scam or
proved guilt for any offence.
SEBI Guidelines for merchant banking
SEBI has classified the merchant bankers into four categories based on
the nature and range of the activities and the responsibilities.
Category I they are allowed to carry on the activity of issue
management and to act as adviser, consultant, manager, underwriter,
portfolio manager.
Category II they are allowed to act as adviser, consultant, co-
manager, underwriter, portfolio manager.
Category III they are permitted to act as underwriter, adviser or
consultant to an issue.
Category IV they can act only as adviser or consultant to an issue.
become a PCM and clear and settle for TM's as well as of the
Custodial Participants
lSelf Clearing Member (SCM)
lA Clearing Member who is also a TM. Such CMs may clear
and settle only their own proprietary trades and their clients'
trades but cannot clear and settle trades of other TM's.
SEBI Regulations for Portfolio Managers