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Merchant Banking and Financial Services, III Semester (MBA), UNIT-2

Definition of Brokers to the Issue

   Posted On :  07.10.2021 07:35 am

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.

The brokerage should be paid by the company within two months from the date of allotment. The particulars of the allotment made against applications bearing their stamps should be furnished to the broker. The cheques for brokerage amount on new issues should be made payable at par at all centers where the recognized stock exchanges are situated. The prospectus should disclose the rate of brokerage.
Tags : Merchant Banking and Financial Services, III Semester (MBA), UNIT-2
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