The origin of Merchant Banking is Italy. The Italian grain merchants provided funds for commodity traders and cargo owners. Their other activities were buying, selling and shipping of goods. The merchant Bankers were either individuals or Banking houses. Later on, the center of merchant banking operations was shifted from Italy to Amsterdam and thereafter to London.
Merchant Banking is one of the major Fee Based/Advisory Services.
In 1969, the Greenlays Bank commenced merchant Banking division in India.
Formal Merchant Banking service was originated. The bank started the activities
relating to public issue of securities. They also undertook financial
consultancy services. In the year 1973 the State Bank of India started Merchant
Banking services. In 1974, the ICICI started research service. After 1975 many
Merchant Banking organizations came into existence. The sponsors for these
organizations were by Banks, Financial Institutions, Non-Banking Financial
Institutions (NBFCs), Brokers and so on. Consequently, the scope of merchant
banking activities was widened.
Initially, the new issue market was regulated under the provisions
of the Capital issues (Control) Act 1947 and rules made under it. In 1992, the
act was repealed. The protection of the interest of the investors was
transferred to the Securities and Exchange Board of India (SEBI). Various regulatory
measures covering both the intermediaries as well as the activities were
introduced by SEBI for strengthening the operations of the new issues in the
country. Many intermediaries who play an important role in the process of
selling new issues emerged.
The major new issue Market intermediaries are:-
Merchant Bankers
Lead Managers
Underwriters
Bankers to issue
Brokers to an issue
Registrars to issue and Share transfer agent
Debenture trustees
Portfolio Managers
The legal framework prescribed by SEBI controlled the operations of
these intermediaries. Rules and regulations were framed by SEBI for prohibition
of fraudulent and unfair trading practices relating to the Securities Market
and Prohibition on dealing/communicating/counseling on matters relating to
insider trading.