Primary market Intermediaries

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Capital Market intermediaries are the important link between the regulators, issuer, and investor. SEBI has issued regulations in respect of each intermediary to ensure proper services to be rendered by them to the investors and the capital market. In this post, we will learn about some primary market intermediaries.

The following market intermediaries are involved in the primary market:

  1. Merchant Bankers/Lead Managers
  2. Registrars and Share Transfer Agents
  3. Underwriters
  4. Bankers to the Issue
  5. Debenture Trustees etc.

Merchant Bankers

  • Merchant Bankers play an important role in the issue management process. Merchant Bankers are mandated by SEBI to manage public issues (as lead managers) and open offers in take-overs.
  • Apart from these, they have other diverse services and functions. These include organizing and extending finance for investment in projects, assistance in financial management, acceptance house business, raising Euro-dollar loans and issue of foreign currency bonds.
  • Lead Managers (Category 1 merchant bankers) has to ensure correctness of the information furnished in the offer document.
  • They have to ensure compliance with the SEBI Rules and regulations and also guidelines for Disclosure and Investor Protection. To this effect, they have are to submit to SEBI a Due Diligence Certificate confirming that disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well-informed investment decision.

Regulation:

Merchant Bankers are one of the major intermediaries between the issuer and the investors, hence their activities are regulated by

  1. SEBI (Merchant Bankers) Regulations, 1992
  2. Guidelines of SEBI and Ministry of Finance
  3. Companies Act 1956.
  4. Securities Contracts (Regulation) Act, 1956. and so on.

Criteria for Merchant Banker:

Regulation 3 of SEBI (Merchant Bankers) Regulations, 1992 lays down that the application by a person desiring to become merchant banker shall be made to SEBI in the prescribed form seeking a grant of a certificate of registration along with a non-refundable application fee as specified.

  • The applicant shall be a body corporate other than NBFC
  • The applicant has the necessary infrastructure like adequate office space, equipment’s and manpower to effectively discharge his activities.
  • the applicant has in his employment a minimum of two persons who have the experience to conduct the business of the merchant banker.
  • The applicant shall be a net worth of not less than 5 Crore rupees.
  • The applicant, his director, partners, or principal officer is not involved in any litigation connected to securities market
  • the applicant, his director, partner, or principal officer has not any time been convicted for any offence involving moral turpitude or has been found guilty of any offence.
  • the applicant has the professional qualification from an institution recognized by the Government of Finance, Law or Business Management.
  • the applicant is fit and proper person
  • grant of certificate to the applicant is in the interest of investors

Registrars and transfer agents

  • R & T agents form an important link between the investor and issuer in the Securities Market.
  • R & T agent is appointed by the issuer to act on its behalf to service the investors in respect of all corporate actions like sending out notices and other communications to the investors as well as dispatch of dividends and other non-cash benefits.
  • R & T agents perform an equally important role in the depository system as well.
  • R & T agents are registered with SEBI in the terms of SEBI (Registrars to the Issue and Share Transfer Agents) Rules and Regulations, 1993.

Underwriters

  • Underwriting services are provided by some large specialists financial institutions such as banks, insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee.
  • Securities underwriting is the process by which investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equities and debt capital). The services are typically used during a public offering in the primary market.
  • Underwriters are required to register with SEBI in terms of SEBI (Underwriters) Rules and Regulations, 1993.

Bankers to the Issue

Bankers to an Issue means a scheduled bank carrying on all of the following activities:

  • acceptance of application and application money
  • acceptance of allotment of call money
  • refund of application money
  • Payment of dividends or interest warrants etc.

The activities of the Banker to an issue in the Indian Capital Market are regulated by SEBI (Bankers to an issue) Regulations, 1994

Debenture Trustees

Debenture Trustee means a Trustee of a Trust deed for securing any issue of debentures.

  • Debenture trustees call for periodical reports from the body corporate
  • takes possession of trust property in accordance with the provisions of the trust deed
  • enforce security in the interest of debenture holders
  • do such acts as necessary in the event the security becomes enforceable
  • carry out such acts as are necessary for the protection of debenture holders and to do all things necessary in order to resolve the grievances of the debenture holders.
  • ascertain and specify that debenture certificates have been discharged within 30 days of registration of the charge with ROC
  • ascertain and specify that debenture certificates have been discharged in accordance with the provisions of the Company Act
  • ascertain and specify that interest warrants for interest due on the debentures have been dispatched to the debenture holders on or before the due date and so on.
  • To inform SEBI in case of breach of Trust Deed and take measures accordingly.

The activities of Debenture Trustee in the Indian Capital Market are regulated by SEBI (Debenture Trustees) Regulations, 1993.


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