Investment Banking Regulations - India - Part 4

Merchant Banking Regulations in India





SCHEDULE I - FORMS
FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 3)

APPLICATION FOR GRANT OF CERTIFICATE /
RENEWAL OF CERTIFICATE



ADDITIONAL INFORMATION FOR FRESH REGISTRATION




NAME OF APPLICANT


CATEGORY:


CONTACT NAME ______________________

TELEPHONE NO: _____________________

INSTRUCTIONS FOR FILLING UP FORM

1. It is important that this application form should be filled in accordance with the regulations.

2. Applicants must submit a completed application form together with appropriate supporting documents to the Board.

3. Application for registration will be considered provided it is complete in all respects.

4. Answers must be typed.

5.All signatures must be original.

6.Information which needs to be supplied in more details may be given on separate sheets which should be attached to the application form.

1. PARTICULARS OF THE APPLICANT

1.1 Name of the Applicant:

1.2 (A) Address - Principal Place of business / Registered Office of the Company.

Pin code: ______________________ Telephone No:________________

Telex No:______________________Fax No:______________________

(B) Address for Correspondence:

Pin code:______________________Telephone No:________________

Telex No:______________________Fax No:______________________

(C) Address of Branch Offices:

2. ORGANISATION STRUCTURE

(Organisation Chart separately showing functional responsibilities of Merchant Banking activities to be enclosed).

2.1 Objectives:-

(To be given in brief along with copy of Memorandum and Articles of Association).

2.2 Date and Place of Incorporation:

Day Month Year Place

2.3 Status of the Applicant:

(e.g. limited company - Private/Public, unlimited company, partnership, proprietary, others. If listed, names of Stock Exchanges and latest share price to be given).

2.4 Particulars of all Directors/Partners/Proprietors:-

Name

Qualification

Experience in Merchant Banking &
Financial Services related areas

Share in applicants firm company

Directorship in other companies

2.5 Particulars of Key Management Personnel: (Particulars of merchant banking division)

Name

Qualification

Experience with particular

reference to merchant banking

Date of appointment

Functional areas

2.6 Name and activities of associate companies/concerns

Name of Company

Address/firm

Type of activity handled

Nature of Interest of Promoter/Director

Nature and interest of applicant company

3. BUSINESS INFORMATION

3.1 History, major events and present activities:

3.2 Details of Experience in Merchant Banking activities.

3.3 Experience in other financial services rendered:-

3.4 Business handled during the last three years:

a) Issue Management

Name of client

Type of Issue

Size of Issue

Year of Issue

Times subscribed

Name of lead merchant banker

Functional responsibilities

b) Investment Adviser: -

Name of Client Year for which services are rendered

Nature of services rendered

c) Underwriting

Name of client Type and size

Amount underwritten of Issue

% age of issue under Year of Issue

Whether there was any devolvement written

d) Portfolio Management


Name of Scheme

Features of the Scheme

Number of Clients

Total Volume of Funds managed

Average Returns

e) Consultants/Advisors to the Issue

Name of the Client

Year of Issue

Type and Size of Issue

Nature of services rendered

Name of Lead Merchant Banker(s)

4. CLIENT INFORMATION

4.1 List of major clients with address

Name

Services Rendered

4.2 If the applicant is proposing to engage in Merchant Banking activities for the first time, the experience of key management personnel to be indicated.

Name of Key management personnel

Qualification

Previous positions held

Experience particularly in respect of merchant banking activities

4.2 (a) If the applicant is proposing to engage in Merchant Banking activities for the first time, business plan of the company with projected volume of activities and income for which registration is sought to be specifically given.

4.3 Details of infrastructure including computing facilities, equity research and database available with the applicant.

4.4 Any other information considered relevant to the nature of services rendered by the applicant.

5. FINANCIAL INFORMATION

5.1 Capital Structure (Rs. in lakhs)



Year prior to the preceding year of current year Preceding year Current year
a) Paid-up capital
b) Free reserves
(excluding re- valuation reserves)
c) Total (a) + (b)

Note: - 1. In case of partnership or proprietary concerns, please indicate capital minus drawings.

2. In case of partnership or proprietary concerns, please indicate the financial position, means and networth of the partners.

5.2 Deployment of Resources (Rs. in lakhs)


Year prior to the preceding year of current year Preceding year Current year
(a) Fixed Assets
(b) Plant & Machinery and
Office Equipment
(c) Quoted Investments
(d) Unquoted Investments
(e) Details of Liquid Assets
(f) Others

(Details of Investments, Loans & Advances made to Associate Companies/ firms where Promoters/ Directors have an interest be separately given).

5.3 Major Sources of Income: (Rs. in lakhs)



Year prior to the preceding year of current year Preceding year Current year *Fees charged as % of issue
(a) Issue Management
(b) Underwriting
(c) Portfolio Management
(d) Consultant/ Advisor to Issue
(e) Investment Adviser
(f) Others

*As fees charged by the merchant banker may vary from issue to issue, please indicate range within which fees have been charged.

5.4 Net Profit



Year prior to the preceding year of current year Preceding year Current year

5. 5 Dividend

Year prior to the preceding year of current year Preceding year Current year

Amount

Percentage

Note: Please enclose three years of audited annual accounts. Where unaudited reports are submitted, give reasons. If minimum networth requirement has been met after last audited annual accounts, audited statement of accounts of a later date also be submitted.

5.6 List of major shareholders (holding 5% and above of applicant directly or along with associates - applicable only to limited companies)

Shareholding as on: ______________________________

Name of shareholder

No. of Shares held

% age of total paid up capital of the company

5.7 Name and Address of the Principal bankers of the applicant.

5.8 Name and address of the Auditors.

6. OTHER INFORMATION

6.1 Details of all settled and pending disputes:

Nature of dispute Name of the party Pending/settled.

6.2 Indictment of involvement in any economic offences by the applicant or any of the Directors, or key managerial Personnel in the last three years.




DECLARATION
THIS DECLARATION MUST BE SIGNED BY TWO DIRECTORS, TWO PARTNERS OR THE SOLE PROPRIETOR AS THE CASE MAY BE

I/We hereby apply for registration. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my registration. I/We declare that the information supplied in the application form is complete and correct.

For and on behalf of ------------------------------------------ (Name of Applicant)

Director/Partner or Sole Proprietor Director/Partner ___________________

(Name in Block Letters) (Name in Block Letters) _______________________

Date





FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 8

CERTIFICATE OF REGISTRATION

In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder the Board hereby grants a certificate of registration to ______________________________ as a merchant banker in Category I 28*[***] subject to the conditions in the rules and in accordance with the regulations to carry out the following activities: -

1. Management of any issue, including preparation of prospectus, gathering information relating to the Issue, determining financing structure, tie up of financiers, final allotment and refund of excess application money.

2. Investment Advisor.

29*[******]

[******]

5. Managers, Consultant or Adviser to any issue including corporate advisory services.

6. Consultant or Advisor.

(*Delete whichever are not applicable)

II. Registration Code for the merchant banker is MB / / /

III. This certificate shall be valid from _____________ to _________ and may be renewed as specified in regulation 9 of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.

Place
Date

By Order
Sd/-
For and on behalf of Securities and Exchange Board of India




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FORM C
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 23)
DUE DILIGENCE CERTIFICATE

To,
SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB: ISSUE OF ____________________ BY _______________________ LTD.

We, the undernoted Lead Manager(s) to the above mentioned forthcoming issue state as follows:

1. We have while finalising the draft prospectus/letter of offer pertaining to the said issue have examined various documents and other material as for adequate disclosures to the investor;

2. On the basis of such examination and the discussions with the company, its directors and other officers, other agencies, independent verification of the statements concerning objects of the issue the contents of the documents and other material furnished by the company, WE CONFIRM that:

(a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the issue;

(b) all the legal requirements connected with the said issue have been duly complied with; and

(c) the disclosures made in the draft prospectus/letter of offer are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.

PLACE:
DATE:

LEAD MANAGER (S) TO THE ISSUE

N. B. A list of documents and materials examined may be forwarded along with this certificate.


Foot notes

28. The figures "II/III/IV" after the word "Category I" and before the words "subject to the conditions" in paragraph 1 in Form A of Schedule I were deleted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

29. The words "3. Underwriting of Issue" and "4. Portfolio Manager Service" after the words "1. Investment Adviser" in paragraph 1 in Form B of Schedule I were deleted by the SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.



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SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 12)

FEES

30*1. Every merchant banker shall pay a sum of Rupees five lacs as registration fees at the time of the grant of certificate by the Board.

2. A merchant banker to keep registration in force shall pay renewal fee of Rs 2. 5 lacs every three years from the fourth year from the date of initial registration.

3. (a) The fee referred to in PARAGRAPH 1 shall be paid by the merchant banker within fifteen days from the date of receipt of the intimation from the Board under sub-regulation (1) of regulation 8

(b) The fee referred to in paragraph 2 shall be paid by the merchant banker within fifteen days from the date of receipt of intimation from the Board under sub-regulation (3) of regulation 9.

4. The fees specified in paragraphs1 and 2 shall be payable by merchant banker by a demand draft in favour of ?Securities and Exchange Board of India? payable at Mumbai or at the respective regional office."]


Foot notes

30. Following paragraphs 1, 2, 3 and 4 were substituted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 30.09.1999.


"1. Every Merchant bankers shall subject to paragraphs 3 and 4 of this Schedule pay registration fees as set out below:

(a) Category I merchant banker.

A sum of Rs 2.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1 lakh to keep his registration in force;

(b) Category II Merchant banker

A sum of Rs 1.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 50,000 to keep his registration in force;

(c) Category III Merchant bankers

A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 25,000 to keep his registration in force;

(d) Category IV Merchant bankers

A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1000/- to keep his registration in force.

(2) Renewal fees to be paid by the Merchant banker.

(a) Category I merchant bankers

A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 20,000 to keep his registration in force;

(b) Category II Merchant bankers

A sum of Rs 75,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 10,000 to keep his registration in force;

(c) Category III Merchant bankers

A sum of Rs 50,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 5,000 to keep his registration in force;

(d) Category IV Merchant bankers

A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 2, 500 to keep his registration in force;

a*(3) The fees specified in paragraphs 1 and 2 above shall be paid in the following manner namely: -

(a) First installment is to be paid within 15 days from the date of intimation from the Board under regulation 8.

(b) Subsequent installments including the renewal fee to be paid on or before expiry of 12 months of each year of registration beginning from date of grant of such registration.


a. Following para 3 was substituted

The Fees specified in paragraphs 1 and 2 above, shall be payable by draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.

The above para 3 originally read as follows which was substituted by SEBI (Payment of Fees) Amendment Regulations, 1995 by notification no S.O. 939 (E) dated 28.11.95.

The Fees specified in paragraphs 1 and 2 above, shall be payable by a cheque or draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.

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31*[Schedule III

Securities and Exchange Board of India

(Merchant Bankers) Regulations, 1992

[Regulation 13]

CODE OF CONDUCT FOR MERCHANT BANKERS

A Merchant Banker shall make all efforts to protect the interests of investors.
A Merchant Banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business.
A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional manner.
A Merchant Banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.
A Merchant Banker shall endeavor to ensure that-
inquiries from investors are adequately dealt with;
grievances of investors are redressed in a timely and appropriate manner;
where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
A Merchant Banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
A Merchant Banker shall endeavor to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision.
A Merchant Banker shall endeavor to ensure that copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue or the offer.
A Merchant Banker shall not discriminate amongst its clients, save and except on ethical and commercial considerations.
A Merchant Banker shall not make any statement, either oral or written, which would misrepresent the services that the Merchant Banker is capable of performing for any client or has rendered to any client.
A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest.
A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.
A Merchant Banker shall make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair, objective and unbiased services.
A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs.
A Merchant Banker shall not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.
A Merchant Banker shall ensure that any change in registration status / any penal action taken by the Board or any material change in the Merchant Banker?s financial status, which may adversely affect the interests of clients / investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients.
A Merchant Banker shall not indulge in any unfair competition, such as weaning away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of other Merchant Bankers or investors or is likely to place such other Merchant Bankers in a disadvantageous position while competing for or executing any assignment.
A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity.
A Merchant Banker shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients, investors and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions.
A Merchant Banker shall not make untrue statement or suppress any material fact in any documents, reports or information furnished to the Board.
A Merchant Banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.

A Merchant Banker shall ensure that the Board is promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non compliance by it, of any law, rules, regulations, directions of the Board or of any other regulatory body.
(a) A Merchant Banker or any of its employees shall not render, directly or indirectly, any investment advice about any security in any publicly accessible media, whether real-time or non real-time, unless a disclosure of his interest including a long or short position, in the said security has been made, while rendering such advice.
(b) In the event of an employee of the Merchant Banker rendering such advice, the merchant banker shall ensure that such employee shall also disclose the interests, if any, of himself, his dependent family members and the employer merchant banker, including their long or short position in the said security, while rendering such advice.
A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description.
A Merchant Banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer?s duties.
A Merchant Banker shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance or resolution of conflict of interests, disclosure of shareholdings and interests etc.
A Merchant Banker shall ensure that good corporate policies and corporate governance are in place.
A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience)
A Merchant Banker shall ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it in the conduct of its business, in respect of dealings in securities market.
A Merchant Banker shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business.
A Merchant Banker shall ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis.
A Merchant Banker shall not be a party to or instrumental for -
creation of false market;
price rigging or manipulation or;
passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market.
Foot notes
31. Following Schedule III was substituted by SEBI (Merchant Banker) (Amendment) Regulations, 2003 published in the Official Gazette of India dated 01.10.2003.


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SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CODE OF CONDUCT FOR MERCHANT BANKERS
(REGULATION 13)
1. A merchant banker in the conduct of his business shall observe high standards of integrity and fairness in all his dealings with his clients and other merchant bankers.

2. A merchant banker shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

He shall wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing unbiased services.

3. A merchant banker shall not make any statement or become privy to any act, practice or unfair competition, which is likely to be harmful to the interests of other merchant bankers or is likely to place such other merchant bankers in a disadvantageous position in relation to the merchant banker, while competing for or executing any assignment.

4. A merchant banker shall not make any exaggerated statement, whether oral or written, to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients.

5. A merchant banker shall always endeavour to -

a. render the best possible advice to the clients having regard to the clients' needs and the environments and his own professional skill; and

b. ensure that all professional dealings are effected in a prompt, efficient and cost effective manner.

6.A merchant banker shall not -

a. divulge to other clients, press or any other party any confidential information about his client, which has come to his knowledge; and

b. deal in securities of any client company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the client company.

7.A merchant banker shall endeavour to ensure that -

a. the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;

b. copies of prospectus, memorandum and related literature are made to the investors;

c. adequate steps are taken for fair allotment of securities and refund of application money without delay; and

d. complaints from investors are adequately dealt with.

8.The merchant bankers shall not generally and particularly in respect of issue of any securities be party to -

a. creation of false market;

b. price rigging or manipulation;

c. passing of price sensitive information to brokers, members of the stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors.

a*[8A (a) A merchant banker or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.

(b) In case, an employee of the merchant banker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.]

9. A merchant banker shall abide by the provisions of the Act, rules and regulations and which may be applicable and relevant to the activities carried on by the merchant banker.

a. Paragraph 8A in Schedule III was inserted by SEBI (Investment advice by Intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.


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32*[SCHEDULE IV
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) (AMENDMENT) REGULATIONS, 1996

(SEE REGULAITON 24A)

1. Every merchant banker shall pay fees as set out below:

Size of the issue including premium and intended retention of over subscription

(Rs.) Proposed Fee per document (Rs.)

Upto 5 crores 10, 000

More than 5 crores and upto 10 crores 15, 000

More than 10 crores and upto 50 crores 25, 000

More than 50 crores and upto 100 crores 50, 000

More than 100 crores and upto 500 crores 2, 50, 000

More than 500 crores 5, 00, 000

2. Fees referred to in clause (1) above, shall be paid in the following manner:

a. The fees shall be paid along with the draft of the offer document submitted to the Board under regulation 24

b. The fees shall be payable by a draft in favour of `Securities and Exchange Board of India' at Mumbai or at the respective regional offices where the draft offer document under regulation 24 is submitted.


Foot notes

32. Schedule IV was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.





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