Intermediaries in New Issues Market

MODULE IV

Intermediary

• An institution that acts as the middleman between investors and firms raising funds

• Often referred to as financial institutions.

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Intermediaries in NIM

• Merchant bankers• Lead managers• Under writers• Banker to an issue• Broker to an issue• Registrars to an issue• Advertising agents• Share transfer agents• Debenture trustees

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Merchant banker

• The merchant bankers are those financial intermediaries involved with the activity of transferring capital funds to those borrowers who are interested in borrowing.

• Merchant Banks are popularly known as “issuing and accepting houses”.

• They offer a package of financial services.

• The basic function of merchant banks is marketing corporate and other securities that are guaranteeing sales

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Lead Manager

• Lead managers are independent financial institution appointed by the company going public.

• Only merchant bankers can act as lead manager

• Companies appoint more then one lead manager to manage big IPO's.

• They are known as Book Running Lead Manager and Co Book Running Lead Managers

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Category of MB or LM

The various categories for which registration can be obtained are

Category-1 Category-2 Category-3 Category-4

To carry on the activity of issue management and to act as adviser,consultant, manager, underwriter, portfolio manager.

To act as adviser, consultant, co-manager, underwriter, portfoliomanager.

To act as underwriter, adviser or consultant to an issue

To act only as adviser or consultant to an issue

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Capital adequacy©

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The capital requirement for carrying on activity as merchant banker:

Category-1 Category-2 Category-3 Category-4

in Rs. 5 crores 50 lakhs 20 lakhs Nil

Registration with SEBI

• Capital adequacy

• Infrastructure

• Experts and professionals

• Fees to SEBI

• Undertaking (MOU)

• Survive lance

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Roles & Responsibilities

• Contract with Issuing company

• Registration with SEBI

• Minimum underwriting – Rs. 25 lakhsor 5%

• Due diligence certificate

• Document submission

• Disclosure to SEBI

• Pre issue and post issue management

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Under writers• A contract by means of which a person

gives an assurance to the issuer to the effect that the former would subscribe to the securities offered in the event of non subscription by the person to whom they were offered.

• Underwriters may be –– Financial institutions– Brokers & approved investment

companies• Financial strength. Experience

reputation, network of investor clientele are considered before appointing underwriter

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Types of underwriting• Standing behind the Issue• Outright purchase• Consortium method

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Advantages of Underwriting•Relief from risk•Company is assured of getting minimum subscription•Expert advice to the company•Public confidence

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Roles & Responsibilities

• Registration

• Fees to SEBI

• Contract

• Daily statement

• Information to SEBI

• Books and Records

• Code of conduct – not keep blank application, office hours etc.,

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Bankers to an issue

• “Banker to an issue” means a scheduled bank carrying on all or any of the following activities, namely:-– Acceptance of application and

application monies;

– Acceptance of allotment or call monies;

– Refund of application monies;

– Payment of dividend or interest warrants

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Bankers to the Issue

• Depending upon the size, bankers are appointed

• Number of collecting centers are specified by the central government. Min 30

• Banks should have branches in the specified collection center

• Issue not exceeding 10 crores -Metropolitan cities compulsory

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Brokers to an issue

• A stock broker is a person or entity, which is a member of a stock exchange.

• A stock broker acts as a facilitator to carry out transactions of investors on a stock exchange

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SEBI guidelines

• Application for registration of stock broker

• Stock brokers to abide by Code of Conduct

• Membership of SE• Maintain proper books of account,

records, etc• Appointment of compliance officer• Stock Broker not to deal with

unregistered Sub-broker• Capital and infrastructure

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Registrars to the Issue• Quotations containing the details of

various functions they would be performing & charges for them are called for selection

• Selection of most suitable one• They recommend the basis of allocation• Hands over the details of share

allocation & related registers to the company

• Dispatch of share certificates to shareholders

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Share transfer agents©

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Roles of Registrar & STA

• Registration

• Maintenance of records

• Allotment

• Consultation with SE

• Functioning as DP

• Consensus between investor and company

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Managers to the new Issue

• Duties– Drafting of prospectus preparing the

budget of expenses

– Suggesting the appropriate timing of the issue

– Assisting in marketing the public issue

– Advising the company in the appointment of registrars to the issue, underwriters, brokers, bankers, advertising agents

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Advertising agents

• Cost effectiveness are considered

• Responsibility of publicity

• Media like news papers, magazines, hoarding, press release etc.,

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Financial Institutions

• Underwrite & provide financial assistance

• Lead manager sends copy of draft prospectus to the financial institutions

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Debenture Trustees

• A Trust deed is an arrangement enabling the property to be held by a person or persons for the benefit of some other person known as beneficiary.

• The Trustees declare the Trust in favour of the debenture holders.

• The Trust Deed may grant the Trustees fixed charge over the freehold and leasehold property while a floating charge may be created over other assets

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Who?

• Following can act as debenture trustees –

• Merchant banker

• Mutual fund

• Insurance company

• Body corporate – including brokragefirms

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Duties

• Registration• Consent• Inspection• Possession of property• Protection of interest• Due diligence• Meeting• Code of conduct• Maintenance of books of accounts• Information to SEBI

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Government & statutory agencies

• SEBI

• Registrar of companies

• RBI

• Stock Exchange

• Industrial licensing authorities

• Pollution control authorities

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