Underwriters to issue of capital are one of the important intermediaries in the new issue/primary market. They agree to take up securities which are not fully subscribed. They make a commitment to get the issue subscribed either by others or themselves. After 1995, underwriting is not mandatory.
Appointment of Underwriters
The issuing companies, in consultation with the lead managers/
merchant bankers to the issues appoint underwriters. The underwriters’ assets
must be adequate to meet their obligations. A statement to this effect should
be incorporated in the prospectus.
Registration
To act as underwriters, a certificate of registration should be
obtained from the SEBI. No separate registration to act as underwriter is
required in the case of merchant banker registered with SEBI.
Matters considered by SEBI in
granting certificate of Registration:
Infrastructure adequacy (office space, equipment and manpower) to
discharge the activities relating to underwriting.
The applicant must have experience in underwriting or he must
appoint at least two persons with experience in it.
The applicant or any person directly or indirectly connected with
the applicant has not been granted registration with the SEBI as underwriter
(Previous application for registration should not have been rejected).
The applicant for underwriting should not have any disciplinary
action taken against him under the SEBI Act/Rules/Regulations.
The applicant for underwriting should have net worth (capital plus
free reserve) of not less than ` 20 lakh.
The applicant for underwriting should not have been found guilty of
any economic offence and should not have been convicted of offence involving
moral turpitude.
Fees
The application fee for underwriter is ` 25,000/- the fee payable for registration at
the time of grant of certificate is ` 10 lakh.
A renewal fee of ` 5 lakh every two years from
the fourth year from the date of initial registration is payable.
Failure to pay the fee would result in suspension of certificate of
registration.
Conditions for Registration
Conditions for registration applicable to merchant bankers are also
applicable to underwriters.
Obligations and
Responsibilities
The underwriters have
To protect the interests of its clients.
To maintain high standards of integrity, dignity and fairness in
the conduct of business.
To render high standards of service and maintain professional
ethics.
To exercise due diligence.
To ensure proper care and professional judgment.
To avoid conflict of interest
To make adequate disclosure of his interest.
To treat equally all its clients without discrimination.
To maintain appropriate level of knowledge and competence.
To abide by the provisions of the SEBI Act, regulations, circulars
and guidelines issued by the SEBI.
Should not have insider trading activity.