Meaning Brokers are the persons mainly concerned with procurement of subscription to the issue from the prospective investors.
Appointment of Brokers
The appointment of brokers is not obligatory. There is no
restriction to the number of brokers to be appointed. The leading merchant
bankers acting as managers to the issue have particulars of the performance of
brokers. The company consults with the stock exchange and writes to all active
brokers of all exchanges. It obtains their consent to act as brokers to the
issue. The prospectus should disclose the names and addresses of the brokers to
the issue and the same along with the copy of the consent letter of the broker
is to be filed with the Registrar of companies.
Who cannot be appointed?
The stock exchange bye laws prohibit the members from acting as
Managers or brokers to the issue and
Making preliminary arrangement in connection with new issue
If the stock exchange of which they are members does not give its
approval. Also it would prohibit the members to act as brokers if the company
does not confirm to the prescribed listing requirements and undertakes to have
its securities listed on a recognized stock exchange.
The permission granted by stock exchange is further subject to
other stipulations which are set out in the letter of consent.
Brokerage Rate
The brokerage rate is 1.5% for all types of public issue industrial
securities. It is immaterial whether the issue is underwritten or not. The
stock brokers have to meet mailing cost and other out of pocket expenses for
canvassing of public issues. The company will not pay these expenses. The
agreement with broker and company should include a clause to this effect.
The brokerage on private placement of capital payable by the listed
companies is a maximum of 0.5%. Brokerage is not allowed in respect of
Promoters quota
Amount taken up by the directors/their friends and employees Rights
issue taken by or renounced by the existing shareholders Brokerage is not
allowed when the application are made by institutions/bankers against their
underwriting commitments.