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RequirementforGrantofCertificate:
TheApplicant
ShallbeabodycorporateotherthanaNBFC.
Hasthenecessaryinfrastructuretodischargehisactivities.
Shouldhaveminimumtwoexperiencedemployeestoconductthebusinessof
merchantBanker.
Shouldfulfillthecapitaladequecyrequirementasspecified.
Hispartner,directororprincipalofficershouldnotbeinvolvedinany
litigationconnectedwiththesecuritiesmarketwhichhasanadverseeffectonthe
businessfotheapplicant.
Shouldhaveaprofessionalfromaninstitutionrecognisedbythegovernment
infinance,laworbusinessmanagement.
Shouldbeafitandaproperperson.
Categoriesofmerchantbanker
CategoryI
aTocarryonanactivityoftheissuemanagement,whichwillinteralia
consistofpreparationofprospectusandotherinformationrelatingtotheissue,
derterminingfinancialstructure,tieupoffinanciersandfinalallotmentand
refundofthesubscritioonandtoactas
advisor,consultant,manager,underwriter,portfoliomanager.(A+C+M+U+P)
CategoryII
Toactasadvisor,consultant,comanager,underwriter,portfoliomanager.
(A+C+U+P)
CategoryIII
Toactasunderwriter,advisor,consultanttoanissue.(U+A+C)
CategoryIV
Toactonlyasadvisororconsultanttoanissue.(AorC)
CapitalAdequecyRequirement
TheCapitalAdequecyRequirement(CAR)shallnotbelessthanthenetworthofthe
personmakingtheapplicationforgrantofregistration.
Thenetworthshallbeasfollows,namely:
CategoryMinimumAmountCategoryIRs.5,00,00,000Category
IIRs.50,00,000CategoryIIIRs.20,00,000CategoryIVNil
Explanation:
Forthepurposeofthisregulationnetworthmeansinthecaseofanapplicant
whichisapartnershipfirmorabodycorporate,thevalueofthecapitalcontributedto
thebusinessofsuchfirmorthepaidupcapitalofsuchbodycorporateplusfree
reservesasthecasemaybeatthetimeofmakingapplications.
ProcedureForRegistration:
TheSEBIonbeingsatisfiedthattheapplicantiseligibleshallgrantacertificatein
FormB.
Onthegrantofacertificatetheapplicantshallbeliabletopaythefeesinaccordance
withScheduleIIasshownbelow:
RegistrationFees:
MerchantBankerInitialfeesfor2YrsContinuationFeesCategoryIRs.2.5lakhsRs.1
lakhCategoryIIRs.1lakhRs.50,000.00CategoryIIIRs.1lakhRs.25,000.00Category
IVRs.5,000Rs.1,000
RenewalofCertificate:
Threemonthsbeforeexpiryoftheperiodofcertificate,themerchantbanker,mayifhe
sodesires,makeanapplicationforrenewalinFromA.
Theapplicationforrenewalshallbedealtwithinthesamemannerasifitwereafresh
applicationforgrantofacertificate.
TheSEBIonbeingsatisfiedthattheapplicantshallbeliabletopaythefeesin
accordancewithscheduleIIasshownbelow:
Renewalfees:
MerchantBankerInitialfeesfor2YrsContinuationFeesCategoryIRs.1
lakhRs.20,000CategoryIIRs.75,000Rs.10,000CategoryIIIRs.50,000Rs.5,000Category
IVRs.5,000Rs.2,500
Obligations&Responsibilities
Codeofconduct:
EverymerchantbankershallbeabidebytheCodeofConductasspecifiedbySchedule
II.
Nomerchantbanker,otherthanabankorafinancialinstitution,whohasbeen
grantedacertificateofregistrationundertheseregulationsshallafterjune30th,1998
carryonanybusinessotherthanthatinthesecuritiesmarket.
Amerchantbankerwhohasbeengrantedcertificateofregistrationtoactasprimary
dealerbyreservebankofindia,maycarryonsuchbusinessasmaybepermittedby
ReserveBankofIndia.
MaintenanceofBooksofAccounts,Records,etc.
EverymerchantbankershallkeepandmaintainthefollowingBooksof
Accounts,recordsanddocumentsnamely:
AcopyofbalancesheetandP&Laccountasattheendofeachaccounting
period;
Acopyoftheauditor'sreportontheaccountsforthatperiod;and
Astatementoffinancialposition.
EverymerchantbankershallintimatetoSEBIthatwherethebooksofaccounts,
RecordsandDocumentsaremaintained.
EveryMerchantbankershall,aftertheendofeachaccountingperiodfurnishto
theSEBIcopiesofthebalanceSheet,P&LAccountandsuchotherdocuments
foranyotherprecedingfiveaccountingyearswhenrequoiredbytheSEBI.
SubmissionofHalfYearlyResults:
EverymerchantbankershallfurnishtotheSEBIhalfyearlyunaudited
financialresultswhenrequiredbytheSEBIwithaviewtomonuitorthecapital
adequecyofthemerchantbankers.
AppointmentoftheLeadMerchantBanker:
Allissuesshouldbemanagedbyatleastonemerchantbankerfunctioningasthe
leadmanager.
Everyleadmerchantbankershallbeforetajkingupanassignmentrelatingtoan
issue,enterintoanagreementwithsuchbodycorporatesettingouttheirmutual
rights,liabilitiesandobligationsrelatingtosuchissueandinparticularto
disclosure,allotmentandrefund.
Restrictiononappointmentofleadmanagers:
Thenumberofleadmerchantbankersmaynot,exceedincaseofany
issueofsizeofissueNo.ofMerchantBankersNoofMerchantBanker
1.LessthanrupesfiftycroreTwo(2)
2.RupeesfiftycrorebutlessthanrupeesonehundredcroreThree(3)
3.RupeesonehundredcrorebutlessthanrupeestwohundredcroreFour(4)
4.RupeestwohundredcrorebutlessthanrupeesfourhundredcroreFive(5)
5.AboverupeesfourhundredcroreFiveormoreasmaybeagreedbytheSEBI.
ResponsibilitiesofLeadManager:
Noleadmanagershallagreetomanageorbeassociatedwithanyissue
unlesshisresponsibilitiesrelatingtotheissuemainly,thoseof
disclosure,allotmentandrefundareclearlydefined,allocatedanddetermined
andastatementspecifyingsuchresponsibilitiesisfurnishedtotheSEBIatleast
onemonthbeforetheopeningoftheissueforsubscription.
Incasetherearemorethanoneleadmerchantbankers,theresponsibilities
shouldbeclearlydemarcated.
Noleadmerchantbankershall,agreetomanagetheissuemadebyanybody
corporate,ifsuchbodycorporateisanassociateoftheleadmerchantbankers.
Underwritingobligations:
Inrespectofeveryissuetobemanaged,theleadmerchantbankerholdinga
certificateunderCategoryIShallacceptaminimumunderwritingobligationof
5%oftheTotalunderwritingCommitmentorrupeestwentyfivelakh,whichever
isless.
Incasetheleadmerchantbankerisunabletoaccepttheminimumunderwriting
obligation,thatleadmerchantbankershallmakearrangementsforhavingthe
issueunderwrittentothatextentbythemerchantbankerassociatedwiththe
issueandshallkeeptheSEBIinformedofsucharrangements.
Appointmentofcomplianceofficers:
Everymerchantbankershallappointacomplianceofficerwhoshallbe
responsibleformoniteringthecomplianceoftheact,rulesandregulations,
notification,guidelines,instructionsetcissuedbytheSEBIorthecentral
governmentandforredressalofinvestorsgrievances.
ThecompliaofficershallimmediatelyandindependentlyreporttotheSEBIany
nonComplianceobservedbyhimandensurethattheobservationsmadeor
deficienciespointedasthecasemaybe,donotrecur.
ProcedureofInspection
SEBI'sRighttoinspect:
TheSEBImayappointoneormorepersonsasinspectingauthoritytoundertake
inspectionof
Thebooksofaccounts,
Recordsand
Documentsofthemerchantbanker.
PurposeofInspection...
toensurethatthebooksofaccountsarebeingmaitainedinthemannerrequired;
toensuretheprovisionsoftheAct,Rules,Regulationsarebeingcompliedwith;
toinvestigateintothecomplaintsreceivedfrominvestors,othermerchant
bankersoranyotherpersononanymatterhavingabearingontheactivitiesof
themerchantbanker;and
toinvestigateintothecomplaintsreceivedfrominvestors,othermerchant
bankersoranyotherpersononanymatterhavingabearingontheactivitiesof
themerchantbanker;and
toinvestigatesuomotointheinterestofsecuritiesbusinessorinvestorsinterest
intiotheaffairsofthemerchantbanker.
NoticeBeforeinspection
Beforeundertakinganinspectionunderregulation29theSEBIshallgivea
reasonablenoticetothemerchantbankerforthatpurpose.
Duringthecourseofinspection,themerchantbankeragainstwhoman
inspectionisbeingcarriedoutshallbeboundtodischargehisobligations.
SubmissionofReporttoSEBI
Theinspectingauthorityshall,assoonasmaybepossiblesubmitaninspection
reporttoSEBI.
ActiononinspectionorInvestigationreport:
TheSEBIorthechairmanshallafterconsiderationofinspectionor
investigationreporttakesuchactionastheSEBIorchairmanmaydeemfitand
appropriateincludingactionundertheSEBI.
AppointmentofAuditors:
TheSEBImayappointaqualifiedauditortoinvestigatetheBooksofaccounts
ortheaffairsofthemerchantbankerprovidedthattheauditorsoappointed
shallhavethesamepowersoftheinspectingauthority.
ProcedureforActionincaseofDefault:
SuspensionofRegistration:
Apenaltyofsuspensionofregistrationofamerchantbankermaybeimposed
where
ThemerchantbankerviolatestheprovisionoftheAct,rulesorRegulations:
Themerchantbanker
*FailstoFurnishanyinformationrelatingtohisactivityasmerchantbanker
asrequiredbytheSEBI;
*furnisheswrongorfalseinformation;
*doesnotsubmitperiodicalreturnsasrequiredbySEBI;
*doesnotcooperateinanyinquiryconductedbytheSEBI
Themerchantbankerfailstoresolvethecomplaintsoftheinvestorsorfailsto
giveasatisfactoryreplytotheSEBIinhisbehalf;
Themerchantbankerindulgesinmanipulatingorpriceriggingorconcerning
activities;
Themerchantbankerfailstomaintainthecapitaladequecyrequirement;
Themerchantbankerfailstopaythefees;
ThemerchantbankerviolatestheconditionsofRegistration;
Themerchantbankerdoesnotcarryouthisobligationsasspecifiedinthe
regulation.
CancellationofRegistration:
Apenaltyofcancellationofregistrationofamerchantbankermaybeimposedif
Themerchantbankerindulgesindeliberatemanipulationorpriceriggingor
corneringactivitiesaffectingthesecuritiesmarketandtheinvestorsinterest;
Thefinancialpositionofthemerchantbankerdeterioratestosuchextentthatthe
SEBIisoftheopinionthathiscontinuanceasmerchntbankerisnotinthe
interestofinvestors;
Themerchantbankerisguiltoffraud,orisconvictedofacriminaloffence;
ShowCausenoticeandorder:
Onreceiptofthereportfromtheenquiryofficer,theSEBIshallconsiderthesame
andissueashowcausenoticeastowhythepenaltyasproposedbytheenquiry
officershoulenotbeimposed.
Themerchantbankershallwithintwentyonedaysofthedateofthereceiptof
theshowcausesendareplytotheSEBI.
TheSEBIafterconsideringthreplytotheShowCausenotice,ifreceived,shall
assoonaspossiblebutnotlaterthanthirddaysfromthereceiptofthereply,if
any,passsuchorderasitdeemsfit.
Everyorderpassedshallbeselfcontainedandgivenreasonsfortheconclusions
statedthereinincludingjustificationofthepenaltyimposedbythatorder.
TheSEBIshallsendacopyoftheordertothemerchantbanker.
EffectofSuspension&CancellationofregistrationofMerchant
Bankers:
Onandfromthedateofthesuspensionofthemerchantbanker,heshallceaseto
carryonanyactivityasamerchantbankerduringtheperiodofsuspension.
Onandfromthedateofcancellationthemerchantbankershallwithimmediate
effectceasetocarryonanyactivityasamerchantbanker.
PublicationofOrderofSupension:
Theorderofsuspensionorcancellationofcertificatepassedshallbepublishedin
atleasttwodailynewspaperbySEBI.
AnypersonaggrievedbyanorderoftheSEBImade,onandafterthe
commencementofthesecuritiesLaws(Secondamendment)Act,1999,(i.e.,after
16thdecember1999),undertheseregulationsmaypreferanappealtoa
SecuritiesAppellateTribunalhavingjurisdictioninthematter.
Source:
http://www.slideshare.net/amarranu/merchantbankersregulationsfinal