Define Merchant Bankers

Definition

“A Merchant Banker means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager/consultant/ advisors or rendering corporate advisory service in relation to such issue”.

The word ‘issues’ in the definition refers to an offer for sale/ purchase of securities by any Body-Corporate/other person or group of persons on its / his / their behalf to, or from the public or, from the holders of the securities through a Merchant Banker.

Categories of Merchant Bankers

Merchant Bankers fall under four categories:-

Category 1 – Merchant Bankers of this category can carry on any activity relating to issue management. The activities are as follows:

Preparation of Prospectus and other information relating to issue,

Determining the financial structure,

Tie-up of financiers,

Final allotment of securities

Refund of subscribes etc.,

They could also act as Advisors, Consultants, Co-Managers, Underwriters or Portfolio Managers.

Category II – Merchant Bankers of this category can act as Advisors, Consultants, Co-Managers, Underwriters and Portfolio Manager.

Category III - Merchant Bankers of this category can act as Underwriters, Advisors and Consultants to an issue.

Category IV - Merchant Bankers of this category can act only as Advisors or consultant to an issue.

All the categories below Category – 1 were abolished by SEBI on 5th September 1997. Those operating below category-1 have to apply for Category-1 status.

Registration of Merchant Bankers

Registration of Merchant Bankers with the SEBI is compulsory to carry out their activities. With effect from 9/12/1997 SEBI registers only category I merchant Bankers. A separate certificate of Registration from SEBI is required to carry on activities as portfolio managers.

Matters considered by SEBI for grant of certificate of Registration

Merchant Bankers should also be a body corporate other than non-banking financial company.

Merchant Bankers must have necessary infrastructure such as place, equipment and manpower to effectively discharge their activities.

Merchant Bankers must have employed at least 2 persons with experience to conduct merchant banking business.

Merchant Bankers should fulfill the capital adequacy requirement of minimum net worth (net worth means paid up capital and free Reserves) of ` 5 crore.

Any person either directly or indirectly connected with the applicant that is an associate/subsidiary/interconnected/group company cannot have a Certificate of Registration from SEBI.

The merchant Bankers/their partners/their directors/principal officers should not be involved in any litigation connected with the securities market, which has an adverse effect on their business.

The merchant Bankers should have recognized professional qualification in Finance, Law or Business Management. Their Registration should be in the interest of the investors. The applicant must be a fit and proper person as per the criteria specified in the SEBI intermediaries Regulation 2008.

Fees Payable

The Merchant Bankers have to pay to the SEBI the following fees:-

Application fee of ` 25,000/-.

Registration fee ` 10 lakh (registration is valid for 3 years from the date of registratrion).

Renewal ` 5 Lakh.