Chapter: Business Science : Merchant Banking and Financial Services : Merchant Banking

SEBI Guidelines

SEBI has pronounced the following guidelines for merchant bankers:

SEBI Guidelines


1 Operational Guidelines


SEBI has pronounced the following guidelines for merchant bankers: 

1. Submission of offer document:


The offer documents of issue size up to Rs. 20 crores shall be filed by lead merchant bankers with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company falls. The jurisdiction of regional offices/head office shall be as per Schedule XXII. According to Clause 5.6 of Chapter V of the Guidelines, the draft offer document filed with the Board shall be made public. The lead merchant banker shall make available 10 copies of the draft offer document to the Board and 25 copies to the stock exchange(s) where the issue is proposed to be listed. Copies of the draft offer document shall be made available to the public by the lead merchant bankers/Stock Exchange. The lead merchant banker and the Stock Exchange(s) may charge a reasonable charge for providing a copy of the draft offer document. The lead merchant banker shall also submit to the Board the daft offer document on a computer floppy in the format specified in Schedule XXIII. The Lead Merchant Banker shall submit two copies of the printed copy of the final offer document to dealing offices of the Board within three days of filing offer document with Registrar of companies/concerned Stock Exchange(s) as the case may be.


The lead merchant banker shall submit one printed copy of the final offer document to the Primary Market Department, SEBI, Head Office, within three days of filing the offer document with Registrar of Companies/concerned Stock Exchange(s) as the case may be. The lead merchant banker shall submit a computer floppy containing the final prospectus/letter of offer to the Primary Market Department, SEBI, Head Office, as specified in Schedule XXIII within three days of filing the final prospects/letter of offer with the Registrar of Companies/concerned Stock Exchange(s). Along with the floppy, the lead manager shall submit an undertaking to SEBI certifying that the contents of the floppy are in HTML, format, and are identical to the printed version of the proposes/letter of offer filed with the registrar of Companies/concerned Stock Exchange, as the case may be. Wherever offer documents (for public/rights issues, takeovers or for any other purpose) are filed with any Department/Office of the Board, the following details ―certifiedshallbegivenbythe leadasmerchantcorrectbanker in the forwarding letters:



a. Registration number


b. Date of registration/Renewal of registration


c. Date of expiry of registration


d. If applied for renewal, date of application


e. Any communication from the Board prohibiting them from acting as a


f. merchant banker


g. Any inquiry/investigation being conducted by the Board


h. Period up to which registration/renewal fees has been paid


i.    Whether any promoter/group and/or associate company of the issuer company is associated with securities-related business and registered with SEBI


j.  If any one or more of these persons/entities are registered with SEBI, their respective registration numbers


k. If registration has expired, reasons for non-renewal


l. Details of any enquiry/investigation conducted by SEBI at any time


m.Penalty imposed by SEBI


n.   Outstanding fees payable to SEBI by these entities, if any Offer documents not accompanied by the information as contained above may be rejected. Lead merchant bankers shall obtain similar information from other intermediaries to ensure that they comply with these guidelines and are eligible to be associated with the concerned issue. The intermediaries shall also indicate in their letters that they have obtained such information from other intermediaries.


2. Dispatch of issue material:


Lead merchant bankers shall ensure that whenever there is a reservation for NRIs, 10 copies of the prospectus together with 1000 application forms are dispatched in advance of the issue opening date, directly along with a letter addressed in person to Adviser (NRI), Indian Investment Centre, Jeevan Vihar Building Sansad Marg, and New Delhi. Twenty copies of the prospectus and application forms shall be dispatched in advance of the issue opening date to the


various Investors Associations.


1.     Underwriting while selecting underwriters and finalizing underwriting arrangement, lead merchant bankers shall ensure that the underwriters do not overexpose themselves so that it becomes difficult to fulfill their underwriting commitments. The overall exposure of underwriter(s) belonging to the same group or management in an issue shall be assessed carefully by the lead merchant banker. OTC Dealers registered with the Board under SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 shall be treated at par with the brokers of other stock exchanges in respect of underwriting arrangement.


4. Compliance obligations:  The merchant banker shall ensure compliance with the following


post-issue obligations


a.     Association of resource personnel: In terms of Clause 7.1 of Chapter VII of these Guidelines, in case of over-subscription in public issues, a Board nominated public representative shall be associated in the process of finalization of the basis of allotment. The lead merchant banker shall intimate to the person so nominated the date, time, venue etc. regarding the process of finalization of the basis of allotment. The expenses of the public representatives associated in the allotment process of oversubscribed issues shall be borne by the lead merchant bankers, and recovered from the issues. Honorarium at a minimum of Rs.500/- per day, plus normal conveyance charges shall be paid to them, and the Board‗s Regional Managers at New Delhi, Chennai and Calcutta shall be associated with them.

b.    Redressal of investor grievances: The merchant bankers shall assign high priority to investor grievances, and take all preventive steps to minimize the number of complaints. The lead merchant banker shall set up a proper grievance monitoring and redressal system in co-ordination with the issuers and the Registrars to Issue.. They shall take all necessary measures to resolve the grievances quickly. They shall actively associate with post-issue refund and allotment activities and regularly monitor investor grievances arising there from.

c.      Submission of post issue monitoring reports: The concerned lead merchant banker shall submit, in duplicate, the Post Issue Monitoring Reports specified in Clause 7.2 of Chapter VII of these Guidelines, within 3 working days from the due dates, either by registered post or deliver them at the respective regional offices/head office give in Schedule XXII. Where the offer documents have been dealt with by any of the regional offices of the Board, a copy of the report shall be sent to the Board‗s Head office, Mumbai. The Lead Merchant Banker(s) shall inform the Board on important developments about the particular issues being lead managed by them during  the period intervening the reports.

d. Issue of No objection Certificate (NOC: In accordance with the Listing Agreement of the Stock Exchanges, the issuer companies shall deposit 1% of the amount of securities offered to the public and/or to the holders of the existing securities of the company, as the case may be, with the regional Stock Exchange. These securities can be related by the concerned Stock Exchange only after obtaining an NOC from the Board. An application for NOC shall be submitted by the issue company to the Board in the format specified in Schedule XXIV. The following conditions shall be complied with before submitting the application for the issue of NOC.

• Completion of 4 months from the date of obtaining the listing permission from the concerned Regional Stock Exchange, or the last date when the listing permission was obtained from any of the other Stock Exchanges, where the securities are proposed to be listed, whichever is later

• Satisfactory Redressal of all complaints received by the Board against the company

• Certificate from the Regional Stock Exchange to the issuer company to the effect that underwriting/brokerage commission as well as the Registrars/Lead merchant bankers fees been duly paid by the company Application for issue of NOC shall be filed with the concerned regional office of the Board, under the jurisdiction in which the registered office of the issuer company falls, as specified in Schedule XXII.. In cases where issues fail, and the investors‘ monies are fully refunded, an NOC from the Board may not be required, and the concerned regional Stock Exchange can refund the 1% security deposit after duly verifying that the refund orders have actually been dispatched. The complaints with respect to non-receipt of underwriting/brokerage commission and Registrars/Lead merchant banker‗s fees may be filed with the concerned regional Stock Exchanges. Responses to complaints forwarded by the Board to the concerned companies shall be submitted to the Board in the proforma specified in Schedule XXV for updating of records.

e. Registration of merchant bankers: Application for renewal of Certificate of Registration shall be made by the merchant bankers according to Regulation 9 of SEBI (Merchant Bankers) Rules and Regulations, 1992. While filing the renewal application for the certificate of registration as merchant banker, it shall provide a statement highlighting the changes that have taken place in the information that was submitted to the Board for the earlier registration, and a declaration stating that no other changes besides those mentioned in the above statement have taken place. Merchant Bankers, while forwarding the renewal application in Form A of the SEBI (Merchant Bankers) Rules and Regulations, 1992, shall also forward the additional information as specified in Schedule XXVI. Registered Merchant Bankers shall inform the Board of their having become a member of AMBI, with the relevant details.

f.Reporting requirements: In terms of Regulation 28 of SEBI (Merchant Bankers Regulation) 1992, the merchant bankers shall send a half yearly report, in the format specified in Schedule XXVII, relating to their merchant banking activities. The report referred to in sub-clause (a) shall be submitted twice a year, on March 31 and September 30, and it should reach the Board within three months from the close of the period to which it relates.

g. Impositions of penalty points: Penalty points may be imposed on the merchant banker for violation of any of the provisions for operational guidelines. The merchant banker, on whom penalty points of four or more has been imposed, may be restrained from filing any offer document or associating or managing any issues for a particular period. The Board may initiate action under the SEBI (Merchant Bankers) Regulations against the merchant bankers, irrespective of whether any penalty point is imposed or not. Imposition of penalty point is not a precondition for initiation of proceedings against the merchant banker under the SEBI (Merchant Bankers) Regulations.

Guidelines on Advertisement Following are the guidelines applicable le to the lead merchant banker who shall ensure due compliance by the issuer company:


Factual and truthful: An issue advertisement shall be truthful, fair and clear, and shall not contain any statement that is untrue or misleading. Any advertisement reproducing, or purporting to reproduce, any information contained in an offer document shall reproduce such information in full and disclose all relevant facts. It should not be restricted to select extracts relating to that item. An issue advertisement shall be considered to be misleading, if it contains : a. Statements made about the performance or activities of the company in the absence of necessary explanatory or qualifying statements, which may give an exaggerated picture of the performance or activities. b. An inaccurate portrayal of past performance, or its portrayal in a manner which implies that past gains or income, will be repeated in the future.


Clear and concise: An advertisement shall be set forth in a clear, concise and understandable language. Extensive use of technical, legal terminology or complex language and the inclusion of excessive details, which may distract the investor, shall be avoided.


1.                 Promise or profits: An issue advertisement shall not contain statements which promise or guarantee rapid increase in profits. An issue advertisement shall not contain any information that is not contained in the offer document.


Mode of advertising: No models, celebrities, fictional characters, landmarks, caricatures or the likes shall be displayed on or form part of the offer documents or issue advertisements. Issue advertisements shall not appear in the form of crawlers (the advertisements which run simultaneously with the program in a narrow strip at the bottom of the television screen) on television. Similarly, no advertisement shall include any issue slogans or brand names for the issue, except the normal commercial name of the company or commercial brand names of its products already in use. No slogans, expletives or non-factual and unsubstantiated titles shall appear in the issue advertisements or offer documents.


5. Financial data: If any advertisement carries any financial data, it shall also contain data for the past three years and shall include particulars relating to sales, gross profit, not profit, share capital, reserves, earnings per share, dividends, and book values.


6. Risk factors: All issue advertisements carried in the print media such as newspapers, magazines, brochures or, pamphlets shall contain highlights relating to any issue, besides containing detailed information on the risk factors. The print size of highlights and risk factors in issue advertisements shall not be less than point 7 sizes. It shall contain the names of Issuer Company, address of its registered office, names of the main lead merchant bankers and Registrars to the Issue. No issue advertisement shall be released without giving ―Ri respect of the concerned issue, provided that an issue opening/closing advertisement which does not contain the highlights need not contain risk factors.


7.  Issue date No corporate advertisement of Issuer Company shall be issued after 21 days of filing of the offer document with the Board until the closure of the issue, unless the risk factors which are required to be mentioned in the offer document, are mentioned in the advertisement.


8.    Product advertisement No product advertisement of the company shall contain any reference, directly or indirectly, to the performance of the company during the period.


9. Subscription No advertisement shall be issued stating that the issue has been fully subscribed or oversubscribed during the period the issue is open for subscription, except to the effect that the issue is open or closed.


10.Issue closure No announcement regarding closure of the issue shall be made except on the closing date. If the issue is fully subscribed before the closing date stated in the offer document, the announcement should be made only after the issue is fully subscribed and such announcement is made on the date on which the issued is to be closed. Announcements regarding closure of the issue shall be made only after the lead merchant banker is satisfied that at least 90% of the issue has been subscribed, and a certificate has been obtained to that effect from the Registrar to the issue.


11. Incentives No incentives, apart from the permissible underwriting commission and brokerage, shall be offered through advertisements to anyone associated with marketing the issue.

12.            Reservation In case there is a reservation for NRIs, the issue advertisement shall specify the same, and also indicate the place in India from where the individual NRI applicant can procure application forms.


13.            Undertaking: An undertaking has to be obtained from the issuer as part of the MoU between the lead merchant banker and the issue company to the effect that the issuer company shall not directly or indirectly release, during any conference or at any other time, any material or information which is not contained in the offer documents.


14. Availability of copies: To ensure that the issuer company obtains approval for all issue advertisements and publicity materials from the lead merchant banker responsible for marketing the issue and also ensure the availability of copies of all issue related materials with the lead merchant banker, at least until the allotment is completed by the SEBI.


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