Definition of Lead Managers

As per the SEBI regulations all issues should be managed by at least one authorized Merchant Banker functioning as Sole manager or Lead manager. As such only Category1 Merchant Bankers could act as Lead Managers to an issue.

Number of Lead Managers

The SEBI guidelines stipulate the following:

For an issue of size less than ` 50 crores, the number of Lead Managers should not exceed 2.

For an issue of size ` 50 crores but less than 100 crores, the maximum number of Lead Managers should not exceed 3.

For an issue of size ` 100 crores but less than 200 crores, the maximum number of Lead Managers should not exceed 4.

For an issue of size 200 crores but less than 400 crores, the maximum number of Lead Managers should not exceed 5.

For an issue of size above ` 400 crore the number of Lead Managers may be 5 or more as may be agreed by SEBI.

Conditions of Registration/Renewal Certificate of a Merchant Banker

The Registration/Renewal certificate of a Merchant Banker is subject to the following conditions:

Prior approval of SEBI is necessary to continue to act as a Merchant Banker after change of its status/constitution – such as amalgamation, merger, and consolidation and any other kind of corporate restructuring/ change in its managing/whole time directors, change in control etc.

A Merchant Banker should enter into a legally binding contract with the issuer specifying their mutual duties and responsibilities.

A Merchant Banker should pay the Registration/Renewal in the prescribed manner.

He should take adequate steps for redressal of grievances of investors within one month of the complaint. He should inform the SEBI the details of complains and the manner of redressal.

He should abide by the relevant regulations under the SEBI act.

Restriction on Business

The Merchant Banker other than a bank/public finance institution is not permitted to carry on business other than in the securities market i.e., he is prohibited from carrying on fund/asset based business such as leasing.

Responsibilities of Lead Managers

Every Lead Manager must sign an agreement with the issuing companies. The agreement must contain the matters regarding mutual rights, liabilities and obligations relating to issues which must necessarily include disclosures, allotment and refund.

Merchant banker should furnish a statement specifying the details in the agreement to SEBI. Such statement should be sent at least one month before the opening of the issue for subscription. The statements should also contain the details about all lead managers and their respective responsibilities if there were more than one Lead Manager/Merchant Banker.

There should be no association between the lead manager and the issuing company.

There should be no association with other merchant bankers who do not hold a certificate of registration with SEBI.

The minimum undertaking obligation to be accepted by a lead manager is 5% of the total underwriting commitment or ` 25 lakhs whichever is less.

Due diligence certificate: The lead manager should furnish a certificate to SEBI 2 weeks before the opening of the issue for subscription stating the following:

The prospectus/letter of offer is in conformity with the documents/materials and papers relevant to the issue.

All legal requirements in connection with the issue have been complied with.

The disclosures are true fair and adequate to enable the investors to make a decision regarding investment.

The merchant banker must submit to the SEBI two weeks before the date of filing with the registrar of companies/regional stock exchanges or both, the following particulars of the issue:

Draft prospectus/letter of offer,

Other literature to be circulated to the investors/shareholders.

The merchant banker should pay to the SEBI, the following fee prescribed:-