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

Definition of Underwriters

   Posted On :  07.10.2021 07:31 am

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.

Should not engage in unfair competition harmful to the interest of other underwriters.
Tags : Merchant Banking and Financial Services, III Semester (MBA), UNIT-2
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