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ISSUE MANAGEMENT

Intermediaries

-A fee/advisory based financial services

-- By Nishant Dhruv, Atmiya College

ISSUE MANAGEMENT

An offer of sale of securities by any body An offer of sale of securities by any body

corporate through a merchant banker.

Nishant Dhruv, Atmiya Institute of

Technology & Science

Intermediaries

� Merchant Bankers/Lead Managers

� Underwriters

� Bankers to an issue

Brokers to an issue� Brokers to an issue

� Registrar and Share Transfer Agents

� Debenture Trustees

� Portfolio Management

Nishant Dhruv, Atmiya Institute of

Technology & Science

1. Merchant Bankers/Lead Managers

� Any person who is engaged in the business

of issue management)

Rendering

Making

arrangemen

t for sales

Intermediaries

Rendering

corporate

Advisory

services to

company Role

Nishant Dhruv, Atmiya Institute of

Technology & Science

� It’s now mandatory that all public issues

should be managed by Merchant banker

� For right issues which do not exceed Rs. 50 � For right issues which do not exceed Rs. 50

lakh, Merchant banker is not necessary.

Nishant Dhruv, Atmiya Institute of

Technology & Science

Merchant Banker/ Lead Manager

1. Registration

2. Grant of Certificate

3. Fee

Conditions of Registration4. Conditions of Registration

5. Responsibilities

6. Restrictions on business

7. Submission of documents

8. Acquisition of shares

Nishant Dhruv, Atmiya Institute of

Technology & Science

1. Registration :

� Compulsory registration is required with SEBI.

� From 1997, SEBI registers only “Category I”

merchant bankers.

� “Category I” merchant bankers can carry any

activity related to Issue management.

Nishant Dhruv, Atmiya Institute of

Technology & Science

2. Grant of Certificate:

� Any person directly/indirectly connected with applicant,

should not have certificate of registration

� CAR of minimum net-worth of Rs. 5 crore

� Directors/Partners should not involve in litigation connected

with securities market.

� Applicant is a fit and proper person (Regulation)

Nishant Dhruv, Atmiya Institute of

Technology & Science

3. Fee

� Application Fee : Rs. 25,000� Application Fee : Rs. 25,000

� Registration Fee : Rs. 10 lacs

� Renewal Fee : Rs. 5 lacs (every 3 years)

Nishant Dhruv, Atmiya Institute of

Technology & Science

4. Conditions of Registration:

� Prior approval of SEBI is required after change of status

� Enter into a legally binding agreement with the issuer specifying their mutual duties & responsibilities

� Pay the registration/renewal fee in the prescribed manner

Nishant Dhruv, Atmiya Institute of

Technology & Science

5. Responsibilities of Lead Manager:

� Agreement with the issuing company about, setting out

their mutual rights, liabilities

� Furnish the statement to SEBI at least 1 month prior to

opening of the issue.

� Lead manager can’t manage the issue, if the issuing

company is its associate. E.g. Kotak Investment Banking

& Kotak Mahindra Bank

Nishant Dhruv, Atmiya Institute of

Technology & Science

6. Restrictions on Business:

� Other than Banker/PFI, no one is allowed to

carry on the business of Merchant Bankercarry on the business of Merchant Banker

� Merchant banker is prohibited from carrying on

fund/asset based business. E.g. Factoring, Bill

Discounting, Leasing etc.

Nishant Dhruv, Atmiya Institute of

Technology & Science

7. Submission of Documents:

� Submit to SEBI at least 2 weeks before the date of filings

to ROCs/SEs

Draft prospectus along with the prescribed fee is payable � Draft prospectus along with the prescribed fee is payable

to SEBI.

8. Acquisition of Shares:

� Merchant banker is prohibited from acquiring securities of

issuer company.

Nishant Dhruv, Atmiya Institute of

Technology & Science

Underwriters

� Underwriters are one who agree to take up

securities which are not fully subscribed.

1 LAKH

Shares Issued

in Market

80,000 Shares

is being

subscribed

20,000 SHARES

UNSUBSCRIBED

Nishant Dhruv, Atmiya Institute of

Technology & Science

� The following operational framework has

been designed by SEBI –

1. Registration1. Registration

2. Fee

3. Agreement with clients (issuer)

4. General Responsibilities

5. Power to Call for Information

Nishant Dhruv, Atmiya Institute of

Technology & Science

1. Registration

� Certificate of registration must be obtain from SEBI.

In granting the certificate, SEBI considers � In granting the certificate, SEBI considers matters relating –

� The underwriter should have at least 2 employees who have experience in the same field.

� CAR is Rs. 20 lakhs (Net worth)

Nishant Dhruv, Atmiya Institute of

Technology & Science

2. Fee

� Application Fee : Rs. 25,000� Application Fee : Rs. 25,000

� Registration Fee : Rs. 10 lacs

� Renewal Fee : Rs. 5 lacs (every 3 years)

Nishant Dhruv, Atmiya Institute of

Technology & Science

3. Agreement with Clients:

� Underwriter has to enter into an agreement with issuing company

� Agreement contains – period within which underwriter has to subscribe the issue –the amount of commission .

4. General Responsibilities:

� Underwriter can’t derive any direct/indirect benefit from issuer other than commission

� Maximum obligation of an underwriter can’t exceed 20 times of net worth.

� Underwriters have to subscribe shares within 45 days

Nishant Dhruv, Atmiya Institute of

Technology & Science

5. Power to Call for Information:

� SEBI may at any time call for information

Nishant Dhruv, Atmiya Institute of

Technology & Science

Bankers To An Issue

� Bankers to an issue are engaged in activities

such as acceptance of application along with such as acceptance of application along with

application money from investors and also

performs the role of issue of capital and

refund of money.

Nishant Dhruv, Atmiya Institute of

Technology & Science

1. Registration

2. Fees

3. Furnish Information

Books of Account/Record4. Books of Account/Record

5. Agreement with Issuing Companies

6. Disciplinary Action by RBI

Nishant Dhruv, Atmiya Institute of

Technology & Science

1. Registration:

� Should have necessary infrastructure, data

processing facility and effective manpowerprocessing facility and effective manpower

� The applicant should not be involve in any of the

litigation connected to securities market.

Nishant Dhruv, Atmiya Institute of

Technology & Science

2. Fee

� Application Fee : Rs. 25,000� Application Fee : Rs. 25,000

� Registration Fee : Rs. 10 lacs

� Renewal Fee : Rs. 5 lacs (every 3 years)

Nishant Dhruv, Atmiya Institute of

Technology & Science

3. Furnish Information:

� Bankers to an issue has to submit following to

SEBI ---SEBI ---

� No. of issues for which he was engaged as banker

� No. of application money received

� The date on which applications have been forwarded to

issuer company (registrar to an issue)

� Amount of refund to the investors

Nishant Dhruv, Atmiya Institute of

Technology & Science

4. Books of Account:

� A banker to an issue is required to maintain

books of account for a minimum period of 3

years.years.

5. Agreement with issuing company:

� Every banker makes an agreement with issuing

company

� Agreement contains no. of collection centres

Nishant Dhruv, Atmiya Institute of

Technology & Science

6. Disciplinary action by RBI

� If RBI takes any disciplinary action against banks

related to issue of payment, then such matter related to issue of payment, then such matter

should immediately should brings into the notice

of SEBI.

� If banker is prohibited by RBI, the registration is

also deemed to be suspended by SEBI.

Nishant Dhruv, Atmiya Institute of

Technology & Science

Brokers to an Issue

Introduction

� Brokers are the one who is directly connect to

the investors. the investors.

� It’s a large pool of investors who are

associated with the brokers

Nishant Dhruv, Atmiya Institute of

Technology & Science

� Meaning:

Brokers to an issue are mainly concerned Brokers to an issue are mainly concerned

with the procurement of subscription to the

issue from its investors (customers).

Nishant Dhruv, Atmiya Institute of

Technology & Science

� Appointment of broker is not compulsory

� The issuer company can appoint as many broker as

it wants

� By and large, leading merchant banker has the

particulars (details) of the performance of the particulars (details) of the performance of the

brokers

� The issuer company may paid

brokerage/commission within the limits

� Brokerage applicable to all types of public issues is

fixed at 1.5%

Nishant Dhruv, Atmiya Institute of

Technology & Science

� All the out-of-pocket cost should be borne by the brokers to an issue

� Listed company are allowed to pay a brokerage on private placement which should not exceed 0.5%

� The issuing company has to pay brokerage/commission within two months from the date of allotment.

� The rate of brokerage payable must be disclosed in the prospectus.

Nishant Dhruv, Atmiya Institute of

Technology & Science

Registrars to an Issue and Share Transfer

Agent

� An intermediary in primary market

� Registrar to an issue carrying activities such as collecting

� STA maintains records of securities held by the investors

� STA deal with all as collecting applications, Keep a proper track record of application & money received, assist the company in determining the basis of allotment, refund orders etc.

� STA deal with all matters related to transfers.

Nishant Dhruv, Atmiya Institute of

Technology & Science

� Registration :

� Category I : Registration can be made with SEBI

as ‘Registrar to an issue’ AND ‘Share Transfer as ‘Registrar to an issue’ AND ‘Share Transfer

Agent’.

� Category II : Registration can be made either as

‘Registrar to an issue’ OR ‘Share Transfer Agent’.

Nishant Dhruv, Atmiya Institute of

Technology & Science

� Capital Adequacy:

� For category I, net worth of Rs.6 lakhs and for category II net worth of Rs.3 lakhs.

� Fees:

For category I, Registration fee Rs. 3 lakhs and � For category I, Registration fee Rs. 3 lakhs and Rs.1 lakh renewal fee (for every 3 years)

� For category II, Registration fee Rs. 1 lakh and Renewal fee Rs.50,000.

� For the both above category application fee is Rs. 10,000

Nishant Dhruv, Atmiya Institute of

Technology & Science

� Maintenance of Records : for 3 years

Nishant Dhruv, Atmiya Institute of

Technology & Science