NISM SERIES IX - MERCHANT

BANKING EXAM
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

NISM IX – MERCHANT BANKING EXAMINATION

SHORT NOTES BY PASS4SURE.IN

I. Introduction to Capital Markets

Capital Markets play a very important role in the development of the economy. It helps in allocating the unutilized
resources i.e. transfer of funds from savers to its efficient users. They consist of investors, who are the backbone of
the economy, issuers, regulatory bodies and intermediaries.

Capital Market provides a platform for the issuers and the investors to come together. It helps the issuers to raise
capital for productive deployment in creating economic wealth. At the same time, the capital market offers investment
avenues to investors with appetite for higher risks and returns as compared to the safe investment option with banks.

Primary Market is the new issue market, which provides opportunity to issuers of securities, Government as well as
corporates, to raise resources to meet their requirements of investments and/or discharge some obligation

Secondary Market helps in providing liquidity to the securities which has already been issued in the primary market.
In this market, an investor liquidates his own investments. Since the securities are traded on the stock exchange and
the transactions are between two investors, the issuer does not come into picture. Secondary Markets operate
through two mediums:

• OTC markets, where the securities are traded and settled bilaterally over the counter.
• Stock exchange route, where trading and settlement is done through the stock exchanges and the buyers and
sellers may not be in touch with each other.

Money market is a market for financial assets that are close substitutes for money. It is a market for short term,
medium term and long term funds.

Products in Indian Securities Market

Equity Market Products

• Equity Shares represent a form of fractional ownership in a business venture. Equity shareholders collectively
own the company and also bear the risk and enjoy the rewards of ownership.
• Preference Shares represent economic interest that has a superior right as compared to equity shares.
Preference shareholders have first preference to receive dividends and return of their capital.
• Convertibles are instruments that can be converted into equity shares of the issuer company. Convertibles
can be issued in the form of debt instruments such as fully or partly convertible debentures or bonds. The
conversion can also be structured as mandatory or at the option of the investor.
• Warrants entitle an investor to buy equity shares after a specified time period at a given price.
• Mutual Funds pools money from numerous investors who wish to save or make investments having similar
investment objective. The Mutual Fund invests in different types of funds in consonance with the investment
objectives.
• Exchange Traded Fund is a fund that can invest in either all of the securities or a representative sample of
securities included in the index.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Derivative Market Products

• Futures contracts are special types of forward contracts in the sense that the former are standardized
exchange‐traded contracts.
• Calls give the buyer the right, but not the obligation, to buy a given quantity of the underlying asset, at a given
price on or before a given future date.
• Puts give the seller the right, but not the obligation, to sell a given quantity of the underlying asset at a given
price on or before a given date.
• Index/Stock Future is an agreement between two parties to buy or sell an asset stock/index) at a certain time
in the future at a certain price.
• Commodity Derivatives markets are markets where raw or primary products are exchanged. Commodity
markets facilitate the trading of commodities such as gold, silver and various agricultural goods.
• An interest rate future is a financial derivative with an interest-bearing instrument as the underlying asset.
Examples include Treasury-bill futures, Treasury-bond futures and Eurodollar futures.

Debt Market Products

• Government Securities Market: are issued to meet the needs enormous amount of money and also is one of
the important sources of borrowing funds is the government securities market. The government raises short
term and long term funds by issuing securities. These securities do not carry default risk as the government
guarantees the payment of interest and the repayment of principal.
• Corporate bonds are bonds issued by firms, corporate and are issued to meet needs for expansion,
modernization, restructuring operations, mergers and acquisitions.

Participants in Indian Securities Market

• Issuer means any company/corporate and also sometime the government making an offer of securities.
• Investors are the persons who actually invest their funds in the securities offered by the issuer. They are
broadly categorized as Retail Investors, Institutional Investors and Non‐ Institutional Investors.
• Intermediaries include stock brokers, sub‐brokers, share transfer agents, bankers to an issue, trustees of trust
deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers,
mutual funds and such other intermediaries who may be associated with securities markets in any manner.
• Stock brokers have been defined as a member of a stock exchange while a sub‐broker means any person not
being a member of stock exchange who acts on behalf of a stock broker as an agent or otherwise for assisting
the investors in buying, selling or dealing in securities through such stock brokers.
• Custodians: mean any person who carries on or proposes to carry on the business of providing custodial
services. Custodial services include safekeeping of the securities.
• Depositories offer various services to their clients, however, the principal function is to provide a facility for
investors to hold and transfer securities in dematerialized form.
• Depository Participant means a person registered as a participant with the SEBI. The Depository provides its
services to clients through its agents called depository participants. These agents are appointed by the
depository with the approval of SEBI.
• Merchant Bankers: means any entity who is engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser
or rendering corporate advisory service in relation to such issue management.
• Registrars to an issue are entities, who on behalf of anybody corporate collect applications from investors in
respect of an issue, keep proper record of applications and monies received from investors and assists body
corporate to determine basis of allotment, process and dispatch allotment letters, refund orders or certificates
in respect of an issue.
• Share transfer agents maintain the record of holders of securities issued by such body corporate and deal with
all matters connected with the transfer and redemption of its securities.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Regulators in Indian Securities Market

The Securities and Exchange Board of India (SEBI) is the securities market regulator. It is responsible for protecting
the interests of investors in securities and to promote the development of, and to regulate the securities market. It
also regulates the issue of new securities, has the power to make rules for regulating the stock exchange, provides
license to dealers and brokers and deals with frauds and inconsistencies in the capital market.

The money market which deals with bonds and deposits is regulated by the Reserve Bank of India It looks at the
macroeconomic conditions and decides the rate of interest to be paid on government securities as well as important
factors like the SLR and CRR. It works with the Government to balance the growth of the country with factors such as
inflation, current account deficits and the exchange rates of global currencies.

Ministry of Company Affairs (MCA) through the Registrar of Companies regulates the Corporate Sector. The Ministry
is concerned with administration of the Companies Act, 2013, other allied Acts and rules & regulations framed there‐
under mainly for regulating the functioning of the corporate sector.

Insurance Regulatory and Development Authority of India (IRDAI) is the watchdog for the insurance sector. Its mission
is to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance
industry and for matters connected therewith or incidental thereto.

Pension Fund Regulatory and Development Authority (PFRDA) is mandated to regulate the pension sector in India. It
was formed through the PFRDA Act of 2003. It is responsible for carrying out the Government of India’s effort to find
a sustainable solution to providing adequate retirement income to the citizens.

Ministry of Finance (MOF) works through the Reserve Bank of India to regulate the securities market to the extent of
investments into India by foreign or Non‐Resident Indian investors. Foreign Exchange Management Act, 1999 came
into force in 2000. The Act along with the Regulations and Rules thereunder specify the conditions to be fulfilled and
the compliances for investment into India.

Role of Investment Banker in Private Equity

Investment bankers are usually appointed by companies seeking to raise capital through private equity sources such
as venture capital funds and later stage private equity funds. Such transactions may also include investors seeking to
sell their existing stakes in companies to other private equity investors.
The following aspects of the investment banker’s role are important –

• Growth Plan Formulation- Advise the company on the arriving at the growth plan and capital investment
required so that the necessary financial forecasts can be furnished to the investors.

• Transaction Structuring – To come up with the correct instrument, quantum of capital to be raised and the
capital structure of the company pre and post the proposed transaction.

• Arriving at Pre-Money Valuation – Investment bankers conduct the valuation of the company for the
proposed transaction in order to arrive at the sell side pitch to the investors and arrive at the transaction
structure.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• Offer Literature, Data Room Assistance – Investment banks prepare the entire transaction related literature
such as the ‘teasers’ or preliminary information memorandum, the detailed information memorandum,
financial models for the business forecast and the proposed transaction. They also assist in compilation of the
information and documents for preparation of the data room based on which the potential buyers conduct
their pre-investment due diligence on the company.

• Leading the Transaction – Investment banks handhold the entire transaction from the initial stage till the
parties execute definitive agreements to bring the transaction to a close.

II. Introduction to Merchant Banking

The primary activity of Merchant Banks is to provide fee‐based advice to corporations and governments on the issue
of securities Merchant banks these days perform a variety of other activities such as financing foreign trade,
underwriting of equity issues, portfolio management and undertaking foreign security business as well as foreign loan
business, project appraisal etc. However, not all merchant banks offer all these services. Since the functions are very
similar to those of Investment Bankers, they are often thought to be the same. However, an investment banker will
also provide investment advice and deal with securities in secondary market, unlike a pure Merchant Banker.

Evolution of International Merchant Banking

Merchant banking originated in Italy then came to France in the seventeenth and eighteenth centuries. In France, a
merchant banker was a merchant who added the banking business to his various activities and utilized his accumulated
profits better. Merchant banks flourished in the United Kingdom in the late eighteenth and early nineteenth centuries
and England became a rich trading nation. Profits from colonial trade were diverted into merchant banking activities.
Investment banks as is called in the United States are one of the most important participants in the US capital market.
They help businesses and governments sell their new security issues in the debt or equity markets to raise capital,
through primary market transactions. Once the securities are sold, they also create the secondary markets for these
securities as brokers and dealers. The Glass‐Steagall Act of 1933 differentiated the activities between the commercial
banks and investment banks and prevented depositories from underwriting. The Securities Exchange Act (1934) in the
United States sought to correct practices in securities trading with the formation of the Securities Exchange
Commission (SEC). However, the relaxation of the rules set out in Glass Steagall Act in 1997, led to a wider
consolidation in the investment and commercial banking space.

Merchant Banking in UK: The primary role of the merchant bankers was to discount bills and to provide safety in
transactions for merchants going from country to country. Later on, merchant banks diversified into capital issue,
advisory as well as management of funds. They also continued the business of financing foreign trade as well as
managing funds for themselves and other merchants. Merchant banks are expected to be more focused on fee income
rather than profits from investing funds.

Merchant Banking in USA In the United States, merchant banks have evolved in to investment banks. Along with all
the functions of a merchant bank, investment banks also risk their own capital and aim to earn profits from their
proprietary trading activities. In the United States, commercial banks and investment banks have been separated in
terms of the sources of capital as well as allowed activities.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Merchant Banking In India

The forerunners of merchant banking in India were the foreign banks and they have been created in India in a variety
of forms. Nationalized banks have created new subsidiaries to carry out merchant banking activities, other domestic
financial institutions have created separate divisions and share brokers and consultancies have registered themselves
as public limited companies or partnerships or proprietary firms

Grindlays Bank began merchant banking operations in 1967 with a license obtained from the RBI followed by Citibank
in 1970. These two banks were providing services for syndication of loans and raising equity apart from other advisory
services. In 1972, the Banking Commission Report asserted the need for merchant banking services in India to be
provided by public sector banks. Following the recommendation of the Banking Commission Report, SBI set up its
merchant banking division in 1972. Other banks such as Bank of India, Syndicate Bank, PNB, and Canara Bank also
followed suit to set up their merchant banking outfits. ICICI was the first financial institution to set up its merchant
banking division in 1973. The later entrants were IFCI and IDBI.

The post liberalization era brought about a marked transformation in the banking arena. The merchant banking
industry was mainly driven by the issue management activity which fluctuated with the trends in the primary markets.
Some of the bigger entities such as SBI, IDBI, ICICI, Kotak Mahindra etc. offer almost the entire gamut of investment
banking services permitted in India. SBI set up SBI Capital markets in 1986 and ICICI set up the ICICI Securities in 2003.
From simply providing advisory services, merchant banks have added a variety of other services. The growth of Indian
industry has given rise to further opportunities in mergers and acquisitions and takeovers. Merchant banks are also
working on asset valuation, investment management and promotion of investment trusts.

Regulatory Framework for Merchant Bankers in India

SEBI was established on April 12, 1992 in accordance with the provisions of the SEBI Act, 1992. Its main agenda
included
• Regulating the stock exchange business
• Register and regulate working of stock business
• Register and regulate working of venture capital and collective investment business
• Promote and regulate SROs
• Prohibit fraudulent and unfair trade practices.
• Prohibit insider trading

SEBI Act also empowers SEBI to impose penalties and initiate adjudication proceedings against intermediaries who
default on the following grounds such as failure to furnish information, return etc. or failure by any person to enter
into agreement with clients etc.
• Section15A prescribes penalty payable by an intermediary for failing to furnish any document, return or report
to the SEBI, or file any return or furnish any information, books or other documents within the time, specified
as in the regulations or maintain books of account or records.
• Section 15B prescribes the penalty payable by an intermediary for failing to enter into an agreement with
his/her client in violation of such a requirement under the SEBI Act, 1992.
• Section 15C prescribes the penalty applicable to a listed company or any person who is registered as an
intermediary, for failing to redress investors’ grievances after having been directed in writing by SEBI to do so
within a specified time period.
• Section 15G prescribes penalties for insider trading.
• Section 15H prescribes penalty for people who fail to disclose acquisition or takeover of shares.
• Section 15HA prescribes a penalty for people indulging in fraudulent and unfair trade practices relating to
securities.
• Section 15HB states that whoever fails to comply with any provision of the SEBI Act, the rules or the regulations
made or directions issued by SEBI
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Role of Appellate Authority ‐Securities Appellate Tribunal (SAT)

The Securities Appellate Tribunal has been set up under the SEBI act, which looks into the appeal of any person who
has been aggrieved by any order of SEBI. This section elaborates on the different Regulations under the SEBI which
discusses the establishment and the role of SAT.

A SAT shall consist of a presiding officer and two other members, to be appointed by the Central Government. Any
person aggrieved by the following may appeal to the SAT, provided the aggrieved person had not granted his consent
to the order against which the appeal is being made. The appeal must be filed within a period of 45 days from the date
on which a copy of the order is received.

• The SAT shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be
guided by the principles of natural justice. Further, subject to other provisions of the SEBI Act, 1992, and other
rules, the SAT shall have powers to regulate its own procedure.
• SAT shall have, for discharging its functions, the same powers as are vested in a civil court under the Code of
Civil Procedure, 1908, while trying a suit, in respect of the given matters.
• SAT shall be deemed to be a judicial proceeding and SAT shall be deemed to be a civil court.
• SAT may file an appeal to the Supreme Court within 60 days from the date of communication of the decision
or order of the SAT to him, on any question of law arising out of the order.

SEBI (Merchant Bankers) Regulations, 1992: The SEBI (Merchant Bankers) Regulations, 1992 lists out the different
criteria for registration of a merchant banker as an intermediary with SEBI. The different on‐going compliances such
as the capital adequacy requirement, general obligation and responsibilities, conditions of registrations, grant and
renewal of certificate etc. which are required to be adhered to by a merchant banker are detailed out in the Regulation.

SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 : SEBI (Issue of Capital and Disclosure
Requirements) Regulations 2018 were notified in September, 2018 and it substituted the SEBI (Issue of Capital and
Disclosure) Regulations, 2009. SEBI (ICDR) Regulations requires that an issuer making an issue of securities to public
or to QIBs or to its existing shareholders by way of rights issue is required to appoint a Merchant Banker registered
with SEBI. Therefore, it would be important to know and understand various provisions of SEBI (ICDR) Regulations
which govern the issue process and specifies rights and obligations of various parties involved in the entire process.

SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009: SEBI (Issue of Capital and Disclosure
Requirements) Regulations 2009 substituted the SEBI (Disclosure and Investor Protection) Guidelines, 2000. SEBI
(ICDR) Regulations requires that an issuer making an issue of securities to public or to QIBs or to its existing
shareholders by way of rights issue is required to appoint a Merchant Banker registered with SEBI. SEBI (ICDR)
Regulations lays down general conditions for capital market issuances for Institutional Placement Program, Qualified
Institutions Placement etc. Eligibility requirements; general obligations of the issuer and intermediaries in public and
rights issuances; regulations governing preferential issues, qualified institutional placements and bonus issues by listed
companies; Issue of IDRs.

Companies Act, 2013: Merchant Bankers provide various services to the companies. Most of the operational aspects
pertaining to a company is administered and regulated by the provision contained in the Companies Act 2013. The
Companies Act, 2013 is a legislation to consolidate and amend the law relating to companies, some Sections came into
force on 12th September, 2013 and there were some more sections notified which came into force on April 1, 2014.

• Chapter III of the Act deals with Prospectus and Allotment of securities and is further divided into two parts,
Part I deals with Public Offer and Part II deals with Private Placement.
• Section 23 of the Act provides that a company whether public or private may issue securities.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• Section 24 enumerates powers of SEBI to administer various sections of Companies Act, 2013 in case of listed
public companies or Companies intending to go public.
• Section 25 specifies the documents which could be deemed to be a prospectus and the enactments applicable
thereto.
• Section 26 states that a prospectus issued by or on behalf of a company or in relation to an intended company
shall be dated, and that date shall be taken as the date of publication of the prospectus and lays down the
matters to be stated and reports which need to be to be set out in prospectus
• The penalties on default or non‐compliance with any provisions of the Companies Act have also been stated
in Sections 36‐38.

Companies Act, 2013 has also specified the requirements with respect to Abridged Prospectus as under:
Abridged Prospectus means a memorandum containing such salient features of a prospectus as may be specified by
SEBI by making regulations in this behalf. Section 33 states that no form of application can be issued for the purchase
of any securities of a company unless it is accompanied by an abridged prospectus with some basic exceptions.

Listing Regulations of SEBI and Listing Agreement of Stock Exchanges

The Issuer is required to enter into a listing agreement with the Stock Exchanges, where the securities of an issuer are
proposed to be listed. The Listing Agreement prescribes the initial conditions and the requirements for continuous
listing on the Stock Exchanges. The compliances to be fulfilled are both time‐based and event based compliances. It is
a standard set of Agreement to be entered into by the Companies seeking listing from the stock exchanges.

There are three main stages in the listing process:

• In‐principle approval from stock exchanges

• Listing of the securities
• Trading permission.

Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956 provides for the definition of securities and the running of stock
exchanges. This act aims to prevent undesirable transactions in securities by regulating the business of dealing therein
and by providing for certain other matters connected therewith. It gives the central government the regulatory
jurisdiction over:
• Stock exchanges through a process of recognition and continued supervision
• Contracts and options in securities
• Listing of securities on stock exchanges.
The objective of SCRA is to prevent undesirable speculation and to regulate contracts and transactions in securities. A
transaction in securities between two persons is essentially a contract. The law that specifically applies in the case of
a securities contract is the SCRA.

Securities Contracts (Regulation) Rules, 1957 (SCRR)

SCRR provides for the actual procedures to be followed by applicants for recognition as a recognized stock exchange
and the requirements with respect to listing of securities on a recognized Stock Exchange. It lays down conditions for
the percentage of shares which need to be offered to the public in order to get the shares listed and also the
percentage of shares which need to remain with public in order to remain listed. SCRR needs to be read in conjunction
with SCRA. SCRR are the rules created for compliance of SCRA. Please go through the provided booklet to understand
the rules given better.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015

Any dealing/trading done by an insider based on information which is not available in public domain, gives an undue
advantage to insiders and affects market integrity. This is not in line with the principle of fair and equitable markets.
In order to protect integrity of the market, the SEBI (Prohibition of Insider Trading) Regulations have been put in place.
The Regulations mainly provide for who can be insiders, what all is prohibited for them and the systemic provisions
which need to be laid down and followed by listed company as well as intermediaries.

Insider is any person who is, or was, connected with a company or is deemed to have been connected with the
company and who is reasonably expected to have access to unpublished price sensitive information in respect of
securities of a company, or who has received or has had access to such unpublished price.

Code of fair disclosure

Regulation 8 specified that the board of directors of every company, whose securities are listed on a stock exchange,
shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished
price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to
these regulations, without diluting the provisions of these regulations in any manner.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 deals with issues such as initial and
continual disclosures of shareholding and control, substantial acquisition of shares or voting rights, bailout takeovers
and investigation and action by SEBI. The regulations begin with an explanation of important terms such as acquirer,
control, person acting in concert and promoter. The regulations envisage acquisitions for:
• Change in Control of Management
• Consolidation of Holdings
• Substantial Acquisition of shares or voting rights (25% or more)

SEBI (Bankers to Issue) Regulations, 1994

The SEBI (Bankers to an Issue) regulations regulate the Bankers to an Issue (BTI) activity which includes:

• Acceptance of application and application monies

• Acceptance of allotment or call monies
• Refund of application monies
• Payment of dividend or interest warrants.

The Banker to an Issue is required to be registered with SEBI subject to complying with the eligibility conditions. SEBI
regulates its activities through reports of its activities filed with SEBI on a periodic basis. Every banker to an issue is
required to enter into an agreement with the issuer company for which it is acting as banker to an issue.

SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993

The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations mainly deal with registration, code of conduct
of entities who undertake activities like collecting applications from investors in respect of an issue and keeping proper
record of applications and monies received from investors or paid to seller of the securities. The Registrars to the Issue
also assist the issuer company or person or group of person in:
• Determining the basis of allotment of securities in consultation with stock exchange
• Finalizing the list of persons entitled to allotment
• Processing and dispatching allotment letters, refund orders or certificates and other related documents in
respect of an issue.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

The scope of activity of the RTA encompasses the period before the issue opens, during the period of issue and after
the issue closes.

SEBI (Delisting of Equity Shares) Regulations, 2009

SEBI (Delisting of Equity Shares) Regulations, 2009 mainly deal with the process of delisting of equity shares of a listed
company which can be done in two ways
• Voluntary delisting is a condition when the issuer company no longer wants to be on the trading platform of
the exchange and exits out of the Exchange.
• The involuntary delisting involves delisting by exchanges on account of any disciplinary action initiated by
either the Exchanges or by SEBI on non‐fulfillment of the listing criteria set by the exchanges.
These regulations do not apply to securities listed without making a public issue on the institutional trading platform
of a recognized stock exchange No company shall apply for and no stock exchange shall permit delisting of equity
shares of the company:
• Pursuant to Buy Back of equity shares or
• Pursuant to Preferential Allotment or
• Unless a period of 3 years has elapsed since listing or
• Any instrument(s) which are convertible into shares that are sought to be listed are outstanding

Where equity shares of a company are delisted by a recognized stock exchange under this Chapter, the recognized
stock exchange shall appoint an independent valuer or valuers who shall determine the fair value of the delisted equity
shares.

Where a company has been compulsorily delisted the company, its whole time directors, its promoters and the
companies which are promoted by any of them shall not directly/ indirectly access the securities market or seek listing
for any equity shares for a period of ten years from the date of such delisting.

SEBI (Intermediaries) Regulations, 2008

Every SEBI registered intermediary dealing in the Stock markets are required to be registered under the SEBI Act, 1992.
For this purpose, the SEBI Regulations, 2008 prescribes the procedure for registration of intermediaries, general
obligations, inspection and disciplinary proceedings and inter alia, criteria for determining a fit and proper person and
code of conduct. Merchant Bankers are also required to comply with SEBI (Intermediaries) Regulations, 2008 in
addition to the SEBI (Merchant Bankers) Regulations.

SEBI (Buy‐Back of Securities) Regulations, 1998

Companies are permitted to buy‐back their own securities from the market under Sections 41, 68 to 70. In case the
company is listed, it is required to also comply with the SEBI (Buy‐back of Securities) Regulations, 1998. These
regulations prescribe, inter alia, the conditions of buy‐back, procedure for buy‐back through tender offer, procedure
for buy‐back from the open market, general obligations from the Company, obligations of the merchant banker and
the action that can be taken against intermediaries by SEBI.

SEBI (Share Based Employee Benefits) Regulations, 2014

Listed companies are allowed to issue shares to their employees under the SEBI Regulations, 2014. The Regulations
prescribe the schemes and the companies to which these Regulations are applicable, implementation of the scheme
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

through trusts, eligibility of the employee to participate in ESOS of the company, formation of compensation
committee, Shareholders’ approval, pricing, lock‐in period and rights of the option‐holder and disclosures required to
be made in the Director’s Report subsequent to ESOP. It also specifies the process of administration and
implementation with respect to Employees Stock Option Scheme (ESOS), Employees Stock Purchase Scheme (ESPS),
Stock Appreciation Rights Scheme (SARS), General Employee Benefits Scheme (GEBS) and Retirement Benefit Scheme
(RBS).

SEBI (Issue and Listing of Debt Securities) Regulations, 2008

These regulations shall apply to public issue of debt securities and listing of debt securities issued through public issue
or on private placement basis on a recognized stock exchange. These regulations specify the issue requirements for
public issues, the procedure for listing of debt securities, conditions for continuous listing and trading of debt
securities, obligations of intermediaries and issuers and procedure for action in case of violation of regulations.

SEBI (Issue and Listing of Non‐convertible Redeemable Preference Shares) Regulations, 2013

These regulations are applicable to public issue of non‐convertible redeemable preference shares listing of non‐
convertible redeemable preference shares on a recognized stock exchange issued by a public company through public
issue or private placement basis c) issue and listing of Perpetual Non‐Cumulative Preference Shares and Perpetual
Debt Instrument, issued by banks on private placement basis in compliance with Guidelines issued by RBI.

SEBI (Real Estate Investment Trust) Regulations, 2014

REIT or Real Estate Investment Trust shall mean a trust registered as such under these regulations. The manager of
the trust, in consultation with trustee, shall appoint the valuer(s), auditor, registrar and transfer agent, merchant
banker, custodian and any other intermediary for managing the assets of the REIT or for offer and listing of its units or
any other activity. The draft offer document filed with SEBI shall be made public, for comments, to be submitted to
SEBI. The lead merchant banker shall ensure that all comments received from SEBI on the draft offer document are
suitably taken into account prior to the filing of the offer document with the designated stock exchanges. The manager
shall submit to the trustee:
• Quarterly reports on the activities of the REIT including receipts for all funds received by it and for all payments
made position on compliance with these regulations.
• Valuation reports within 15 days of the receipt of the valuation report from the valuer
• Decision to acquire or sell or develop any property or expand existing completed properties along with
rationale for the same.
• Details of any action which requires approval from the unit holders as required under these regulations;
• Details of any other material fact including change of its directors, any legal proceedings that may have a
significant bearing on the activity of the REIT within 7 working days of such action.
•

SEBI (Infrastructure Investment Trust) Regulations, 2014

InvIT or Infrastructure Investment Trust shall mean the trust registered as such under these regulations. The role of
the manager includes:
• Ensure that the investments made by the InvIT are in accordance with the investment conditions specified in
regulation.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• In consultation with trustee, appoint the valuer(s), auditor, registrar and transfer agent, merchant banker,
custodian and any other intermediary or service provider or agent as
• may be applicable with respect to activities pertaining to the InvIT
• Responsible for all activities pertaining to issue of units and listing of units of the InvIT including filing of
placement memorandum with SEBI, filing the draft and final offer document with SEBI and the exchanges
within the prescribed time period, dealing with all matters up to allotment of units to the unit holders etc.
• Ensure that disclosures made in the offer document or placement memorandum contains material, true,
correct and adequate disclosures and are in accordance with these regulations.
• Ensure adequate and timely redressal of all unit holders’ grievances Ensure that the disclosures or reporting
to the unit holders, SEBI, trustees and designated stock exchanges, are in accordance with these regulations
and guidelines or circulars issued hereunder.
• Submit to the trustee whatever required by laws and regulations.

Competition Act, 2002

The Competition Act, 2002 was passed by the Parliament in the year 2002. It was subsequently amended by the
Competition Act, 2007. In accordance with the provisions of the Act, the Competition Commission of India and the
Competition Appellate Tribunal have been established. The provisions of the Competition Act relating to anti‐
competitive agreements and abuse of dominant position were notified on May 20, 2009. The Competition Act, 2002,
prohibits anti‐competitive agreements, abuse of dominant position by enterprises and regulates combinations
(acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on
competition within India.

Foreign Exchange Management Act, 1999

The Foreign Exchange Management Act , 1999 (FEMA) was passed to replace the erstwhile Foreign Exchange
Regulation Act, The main objective behind the Foreign Exchange management Act (1999) is to consolidate and amend
the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also
formulated to promote the orderly development and maintenance of foreign exchange market in India. FEMA is
applicable to the whole of India. The act is also applicable to all branches, offices and agencies outside India owned or
controlled by a person who is a resident of India. The FDI related notifications are issued by RBI under the FEMA, 1999.

SEBI (Underwriters) Regulations, 1993

Underwriter means a person who engages in the business of underwriting of an issue of securities of a body corporate.
Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate or
procure subscription when the existing shareholders of such body corporate or the public do not subscribe to the
securities offered to them. These Regulations specify the conditions and procedure for registration of underwriters as
also the general obligations and responsibilities of underwriters. Thus in simple words it can be said that when public
fails to respond / subscribe to an issue, Underwriters have to chip in and get the issue subscribed.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

The Depositories Act, 1996

The Depositories Act enables setting up of multiple depositories in India. The Act ushered in an era of efficient capital
market infrastructure, improved investor protection, reduced risks and increased transparency of transactions in the
securities market. The Act specifies, inter alia, the rights and obligations of depositories, participants, issuers and
beneficial owners. As on date, there are two registered depositories in India viz. Central Depository Services (India)
Limited (CDSL) and National Securities Depository Ltd. (NSDL).

SEBI (Depositories and Participants) Regulations, 2018

These Regulations deal with the procedural requirements to be complied with by the depository or Depository
Participant with respect to registration of depository, obtaining of certificate of commencement of business,
registration of participant, rights of depositories, participants, issuers, manner of surrender of certificate of security
and creation of pledge or hypothecation.

A Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the
depository and the investors. The relationship between the DPs and the depository is governed by an agreement made
between the two under the Depositories Act, 1996, SEBI [Depositories and Participants] Regulations, 1996 and the Bye
laws of the Depository.

SEBI (Certification of Associated Persons in Securities Markets) Regulations, 2007

• The SEBI (CAPSM) Regulations, 2007, Regulations 7 and 8, delegates a given set of powers and functions to
National Institute of Securities Markets
• Regulation 3 of the SEBI (CAPSM) Regulations, 2007 provides that SEBI may require such categories of
associated persons to obtain requisite certificate for engagement or employment with such classes of
intermediaries.
• An associated person on being employed or engaged by an intermediary on or after the date specified by SEBI
shall obtain the certificate within one year from the date of being employed or engaged by the intermediary.
• The certificate given under regulation 3 of SEBI (CAPSM) Regulations, 2007 is valid for a period of 3 years from
the date of the grant of the certificate or revalidation as the case may be. Upon the expiry of the validity of
the certificate possessed by the associated person.
• The certificate shall be revalidated for a period of 3 years provided the associated person successfully
completes a programme of continuing professional education as specified by NISM.

SEBI (Foreign Portfolio Investors) Regulations, 2014

A Foreign Portfolio Investor (FPI) has been defined to mean a person who satisfies the prescribed eligibility criteria
and has been registered under the FPI Regulations. All existing Foreign Institutional Investors (FIIs) and QFIs are to be
merged into one category called FPI.

An applicant desirous of FPI registration should, inter alia, satisfy the given set of conditions.

• A foreign portfolio investor shall transact in the securities in India only on the basis of taking and giving delivery
of securities purchased or sold. However, this restriction shall not apply to:
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

o Any transactions in derivatives on a recognized stock exchange

o Short selling transactions in accordance with the framework specified by the Board
o Any transaction in securities pursuant to an agreement entered into with the merchant banker in the
process of market making or subscribing to unsubscribed portion of the issue in accordance with the SEBI
(ICDR) Regulations, 2009.
• No transaction on the stock exchange shall be carried forward.
• The transaction of business in securities by a foreign portfolio investor shall be only through stock brokers
registered by SEBI.

SEBI (Alternative Investment Funds) (AIF) Regulations, 2012

Alternative Investment Fund means any fund established or incorporated in India in the form of a trust or a company
or a LLP or a body corporate which is a privately pooled investment vehicle which collects funds from investors,
whether Indian or foreign, for investing it in accordance with a investment policy for the benefit of its investors and
which is not covered by SEBI. Alternative Investment Fund can raise funds through private placement by issue of
information memorandum or placement memorandum.

This Regulation also covers the requirements for Angel Fund. Angel Fund means a sub‐category of Venture Capital
Fund under Category I‐ Alternative Investment Fund that raises funds from angel investors and invests in accordance
with the provisions of this Chapter. Alternative Investment Funds shall seek registration under different sub‐categories
as mentioned in the SEBI (AIF) Regulations.

• Category I Alternative Investment Fund which invests in start‐up or early stage ventures or social ventures or
SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or
economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure
funds and such other Alternative Investment Funds as may be specified
• Category II Alternative Investment Fund which does not fall in Category I and III and which does not undertake
leverage or borrowing other than to meet day‐today operational requirements and as permitted in these
regulations
• Category III Alternative Investment Fund which employs diverse or complex trading strategies and may employ
leverage including through investment in listed or unlisted derivatives.

SEBI (Research Analyst) Regulations, 2014

The SEBI (Research Analyst) Regulations 2014, specifies who is a research analyst and the specific regulations to be
followed by them. Persons acting as a Research analyst or research entity cannot hold himself out as a research analyst,
unless he holds a SEBI Registration certificate. An individual registered as research analyst under these regulations,
individuals employed as research analyst and partners of a research analyst, if any, engaged in preparation and/or
publication of research report or research analysis shall have the following minimum qualifications. The SEBI (Research
Analyst) Regulation specifies the limitations on trading, the internal policies and control procedures governing the
dealing and trading by any research analyst. The regulation also specifies the limitations on publication of research
report, public appearance and conduct of business, etc.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

SEBI (Investment Adviser) Regulations, 2013

The SEBI (Investment Adviser) Regulation, 2013 basically regulates investment Advisers. Investment Adviser means
any person, who for consideration, is engaged in the business of providing investment advice to clients or other
persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever
name called Investment Advice means advice relating to investing in, purchasing, selling or otherwise dealing in
securities or investment products, and advice on investment portfolio containing securities or investment products,
whether written, oral or through any other means of communication for the benefit of the client and shall include
financial planning:
• Provided that investment advice given through newspaper, magazines, any electronic or broadcasting or
telecommunications medium, which is widely available to the public shall not be considered as investment
advice for the purpose of these regulations
• This Regulation specifies that any person acting as Investment Adviser needs to be registered with SEBI, it also
lists out the conditions to be followed by Investment advisers.
• The regulation specifies the general obligations and responsibilities of the Investment Advisers disclosures
which they need to make to their clients etc.

III. Registration, Code of Conduct & General Obligations of Merchant Bankers in India
As per the SEBI (Merchant Bankers) Regulations, 1992, a body corporate other than a non banking financial company
(NBFC) can undertake activities that are relating to merchant banker. Some of the specific activities carried out by a
merchant banker are listed below:
• Managing the public issue of securities
• Underwriting the public issue
• Managing/advising on international debt/equity offerings like GDRs, ADRs, FCCBs etc.
• Private placement of securities
• Primary/satellite dealership of government securities
• Corporate advisory services such as mergers, takeovers, buybacks etc.
• Stock broking
• Advisory services for projects
• Syndication of domestic loan offerings
• International financial advisory services

Registration of Merchant Bankers

Definition: In the SEBI (Merchant Bankers) Regulations, 1992, a Merchant Banker is defined as “any person who is
engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing
to securities or acting as manager, consultant, adviser or rendering corporate advisory service in relation to such issue
management”

Categories of Merchant Bankers

An application for the grant of certificate of registration as merchant bankers needs to be submitted to SEBI. The
regulation states that an application for registration made under this regulation shall be accompanied by a non‐
refundable application fee of Rs.50,000/‐ and can be made only for Category I Merchant Banker, if it is for issue
management. Category I, that is -
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• To carry on any activity of the issue management, which will, inter alia, consist of preparation of prospectus
and other information relating to the issue, determining financial structure, tie up of financiers and final
allotment and refund of the subscriptions
• To act as adviser, consultant, manager, underwriter, portfolio manager

Eligibility Criteria for registering as a Merchant Banker

Consideration of Application: SEBI shall consider grant of a certificate of merchant banker to an applicant who complies
with the given requirements.

Capital Adequacy Requirements: The regulation 7 of the SEBI MB Regulations specify that the capital adequacy
requirements for applicants seeking registration as Merchant Bankers is that it shall have a net worth of not less than
Rs.5 crore.

Fit and Proper Person: For purpose of granting registration to an applicant, SEBI takes into account the “Criteria for fit
and proper person” as given under the SEBI (Intermediaries) Regulations 2008.

Furnishing of Information, Clarification and Personal Representation: SEBI may require the applicant to furnish further
information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal
of the application. The applicant or its principal officer shall, if so required, appear before SEBI for personal
representation.

Registration, Renewal Fees & Validity

SEBI, after being satisfied that the applicant is eligible for registration as a merchant banker, shall grant the certificate.
On being intimated of the grant of this certificate the merchant banker is required to pay the requisite fees. Every
Merchant Banker is required to pay a fee of Rs.20 lakh as registration fees. A merchant banker who has been granted
a certificate of registration, to keep its registration in force, shall pay a fee of nine lakh rupees every three years from
the sixth year, from the date of grant of certificate of registration or from the date of grant of certificate of initial
registration granted prior to the commencement of the SEBI Regulations, 2016, as the case may be.

Registration Requirements of Merchant Bankers as Underwriters

As per regulations, any person willing to act as an Underwriter needs to hold a valid certificate of registration granted
by SEBI. Stock Brokers and/ or Merchant bankers holding a valid registration certificate under SEBI Act are entitled to
act as an underwriter without obtaining a separate certificate as per the SEBI (Underwriters) Regulation and will be
governed by these regulations in other respects.

Code of Conduct for Merchant Bankers

The Regulation 13 provides that each merchant banker registered with SEBI should follow the prescribed code of
conduct as given under the Schedule III of the SEBI (Merchant Bankers), Regulation. The code of conduct emphasizes
the importance of integrity, honesty and ethical behavior expected from merchant bankers. It also lays out the need
for proper supervision of the employees and agents of a merchant bank, since they are in contact with investors and
clients very frequently. Since the business of a merchant banker is totally client and investor driven, merchant bankers
are expected to keep in mind the interests of the investors at all times and redress any grievances immediately as well
as keep SEBI informed of the same. Please refer the booklet provided to study the specified code of conduct.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

General obligations and Responsibilities

• Code of Conduct: In order to maintain the highest level of honesty, integrity, ethics, professional judgment
and keeping the interests of the investor in mind, SEBI requires that merchant bankers follow the Code of
Conduct as specified in the SEBI Regulations.
• No merchant banker, other than a Bank or a Public Financial Institution, who has been granted a certificate of
registration under these regulations, shall carry on any business other than that in the securities market.
• Maintain books of accounts: The solvency and financial stability of merchant bankers is of prime importance
to the merchant banking business. Keeping this in mind, SEBI has prescribed certain rules under regulation 14
of the SEBI MB Regulations.
• Submission of half‐yearly results: In order to properly monitor the capital adequacy and the financial health
of the merchant banker, regulation 15 has mandated merchant bankers to submit the unaudited half yearly
financial results when required by SEBI.
• Responsibilities of lead managers: Lead managers of an issue are primarily responsible for the pricing,
financing and distribution of the securities. They have a greater responsibility towards investors, SEBI and the
issuer company.
• In order to ensure the highest standards of integrity and service to investors and clients, Regulation 21 of the
SEBI MB Regulation has prescribed that merchant bankers shall not be lead managers in any issue if a
merchant banker who is not holding a certificate of registration from SEBI is associated to the issue.
• Underwriting Obligations: As per provisions of the regulation 22 of the SEBI MB Regulation, for every issue,
the lead manager will accept a minimum underwriting obligation of 5% of the total underwriting commitment
or Rs.25 lakh, whichever is lesser.
• Acquisition of shares prohibited: In order to prevent merchant bankers from profiting from sensitive
information they may have about their clients or otherwise, SEBI has prohibited acquisition of shares on the
basis of such information.
• Information to SEBI: Every merchant banker shall submit to SEBI complete particulars of any transaction for
acquisition of securities of anybody corporate whose issue is being managed by that merchant banker within
fifteen days from the date of entering into such transaction.
• In order to maintain highest levels of transparency, merchant bankers are required to make disclosures
regarding issue management and capital adequacy.
• Appointment of Compliance Officer: In order to deal with investor grievances and any compliance issues with
the Code of Conduct, a merchant banker is required to appoint a Compliance Officer to ensure the proper
compliance to all the rules and regulations

Redressal of Investor Grievances and SCORES

Complaints arising out of issues that are covered under SEBI Act, Securities Contract Regulation Act, Depositories Act
and Rules and Regulation made there under and provisions that are covered under section 26 of Companies Act are
complaints dealt with by SEBI.

For redressal of investor grievances, each Merchant Banker is given a user id and password for gaining access to the
SCORES website. The merchant banker is expected to log in to the website on a daily basis to check for any new
complaints uploaded by SEBI and to initiate steps to get these resolved at the earliest. As stated above, the merchant
banker is also expected to submit an Action Taken Report (ATR) in respect of each such complaint.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

IV. Issue Management – Important Terms

• Initial Public Offer: Initial Public Offer (IPO) means an offer of specified securities by an unlisted issuer to the
public for subscription and includes an offer for sale of specified securities to the public by any existing holders
of such securities in an unlisted issuer.
• Further Public Offer: A further public offering (FPO) means an offer of specified securities by a listed issuer to
the public for subscription and includes and offers for sale of specified securities to the public by any existing
holders of such securities in a listed issuer.
• Net Public Offer: Net offer to public means an offer of specified securities to the public but does not include
reservations made for certain investor‐categories.
• Rights Issue: Rights issue means an offer of specified securities by a listed issuer to the shareholders of the
issuer as on the record date fixed for the said purpose.
• Institutional Placement Program means Offer of shares to QIBs for the purpose of achieving minimum public
shareholding requirements as required under regulations
• Qualified Institutions Placement: When a listed issuer issues equity shares or securities convertible in to
equity shares to Qualified Institutional Buyers only in terms of provisions of SEBI Regulations it is called a QIP.
• Preferential issue means an issue of specified securities by a listed issuer to any select person or group of
persons on a private placement basis and does not include an offer of specified securities made through a
public issue, rights issue, bonus issue, employee stock option scheme, ESOPs scheme or qualified institutions
placement or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign
securities.
• Offer for sale through Stock Exchange Mechanism: In order to facilitate promoters to dilute/offload their
holding in listed companies in a transparent manner with wider participation, SEBI has allowed the offer for
sale of shares by promoters of such companies through a separate window provided by the stock exchange(s).
• Offer document is a document which contains all the relevant information about the company, promoters,
projects, and financial details, objects of raising the money, terms of the issue etc. and is used for inviting
subscription to the issue being made by the issuer.
• Book building means a process undertaken to elicit demand and to assess the price for determination of the
quantum or value of specified securities or Indian Depository Receipts, as the case may be, in accordance with
these regulations
• In fixed price issue, the Prospectus that is filed with RoC contains the issue price per share and the demand
for the issue is known only while the issue is kept open for subscription.
• When one category of investors is offered shares at a price different from the other category it is called
differential pricing.
• Companies with fast track issue option can proceed with FPOs / Right Issues by filing a copy of
• Red Herring Prospectus / Prospectus with the ROC or the Letter of Offer with designated Stock Exchange, SEBI
and Stock Exchanges. Such companies are not required to file Draft Offer Document for SEBI comments and
to Stock Exchanges.
• Green shoe option is as an option of allotting equity shares in excess of the equity shares offered in the public
issue as a post‐listing price stabilizing mechanism. Green Shoe Option is a price stabilizing mechanism in which
shares are issued in excess of the issue size, by a maximum of 15%.
• Safety net arrangement means an arrangement provided by the issuer under which a person offers to
purchase specified securities from the original resident retail individual allottees at the issue price.
• Application Supported by Blocked Amount (ASBA) is an application containing an authorization to block the
application money in the bank account, for subscribing to an issue. The bank will block the application money
in the bank account specified in the ASBA on the basis of the authorization.
• Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• The underwriter guarantees a fixed amount to the issuer from the issue. In case of soft underwriting, the
underwriter agrees to buy his commitment at a later stage only when the price of shares is known, pursuant
to book building.
• In an open book building system the merchant banker along with the issuer ensures that the demand for the
securities and the bids are displayed online on the website of the Stock Exchanges. In the closed book building
system, the book is not made public and the bidders will have to take a call on the price at which they intend
to make a bid without having any information on the bids submitted by other bidders.
• The stock exchange where securities of the issuer are proposed to be listed and is chosen by the issuer is a
designated stock exchange.
• Basis of allocation refer to the proportion of shares to be allotted to each type of investor.
• Specified securities mean equity shares and convertible securities.
• Employee means a permanent and full‐time employee, working in India or abroad, of the issuer or of the
holding company or subsidiary company or of that material associate(s) of the issuer.
• Unified Payment Interface (UPI) Mechanism is an immediate real-time payment system that helps in instantly
transferring the funds between the two bank accounts. SEBI issued a circular to introduce UPI based payment
mechanism with Application Supported by Block Amount (ASBA) for applications in public issues by retail
individual investors through intermediaries (Syndicate members, Registered Stock Brokers, Registrar and
Transfer agent and Depository Participants). The underlying objective is to increase the efficiency, eliminate
need for manual intervention at various stages, and to reduce the time duration from issue closure to listing
by upto 3 working days. UPI has since been successfully used in public issues and SEBI is presently in the
process of evaluating the migration to the third phase of this system by reducing the processing time of public
offers from the present T+6 to the T+3 system.
• Alternate Capital Market for SME Start- ups - Under the ICDR Regulations, small and medium enterprises
(SMEs) have been given an opportunity to list their securities on an alternative platform in the stock exchange,
known as the SME Exchange. ‘SME exchange’ means a trading platform of a recognised stock exchange having
nationwide trading terminals permitted by the SEBI to list the specified securities issued in accordance with
the regulations and includes a stock exchange granted recognition for this purpose but does not include the
Main Board (Main Exchange).
• Alternate Capital Market under Innovator’s Growth Platform - ICDR Regulations specifies provisions for
specified categories of issuers to seek listing of their specified securities pursuant to an IPO or only for trading
on a stock exchange of their specified securities without making a public offer. This market known as the
‘Innovators Growth Platform (IGP)’ and is accessible only to institutional investors and non-institutional
investors.

• Categories of investors

o Retail individual Investor (RIIs): means an investor who applies or bids for securities for a value of not
more than Rs.2 lakh.
o Non Institutional Investors (NIIs): Investors who do not fall within the definition of the above two
categories are categorized as Non Institutional Investors.
o Anchor Investor: Anchor investor means a qualified institutional buyer who makes an application for a
value of Rs.10 crores or more in a public issue through the book building process, one day before opening
of that public issue.
o Qualified Institutional Buyers (QIBs) include various types of investors like mutual funds, insurance
companies, scheduled banks, venture capital funds, NBFCs etc.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

V. Issue Management ‐ Process and Underwriting

Issue Management

The provision of the SEBI ICDR Regulations streamlines the framework for public issues. It along with public issues also
deals with Rights issues upto 50 lakhs, preferential Issue, an issue of bonus shares by a listed issuer, Qualified
Institutions Placement, Institutional Placement, Issue of Indian Depository Receipts (IDRs), Right Issue of Indian
Depository Receipts, Issue of Specified Securities by Small And Medium Enterprises, Listing and Issue of SME on
Institutional Trading Platform without IPO.

The regulations also sets out the common conditions which an issuer needs to fulfill for public issues and rights issues,
which is discussed in the regulation 4 of the SEBI ICDR.

• Any issuer offering specified securities through a public issue or rights issue shall satisfy the conditions as
mentioned in the different provisions of SEBI ICDR Regulations at the time of filing draft offer document with
SEBI (unless stated otherwise in the said regulations in the said regulations) and at the time of registering or
filing the final offer document with the Registrar of Companies (RoC) or designated stock exchange, as the
case may be.
• No issuer shall make a public issue or rights issue of specified securities.
• Warrants may be issued along with public issue or rights issue of specified securities subject to certain
conditions.
• The amount for general corporate purposes, as mentioned in objects of the issue in the draft offer document
filed with the Board, shall not exceed twenty five per cent of the amount raised by the issuer by issuance of
specified securities.
• An issuer making a rights issue of specified securities, shall make disclosures as specified in Part G of Schedule
VIII, in the offer document and abridged letter of offer, if the issuer or any of its promoters or directors is a
willful defaulter.
• In case of a rights issue of specified securities referred to in sub‐regulation (6) above, the promoters or
promoter group of the issuer, shall not renounce their rights except to the extent of renunciation within the
promoter group.

INITIAL PUBLIC OFFER (IPO)

The regulations also set out the eligibility requirements which an issuer needs to fulfil for initial public offer on the
Main Board of the designated stock exchange. Unless otherwise provided in the regulations, an issuer making an initial
public offer of specified securities shall satisfy the conditions as per the regulations as on the date of filing of the draft
offer document with SEBI and also as on the date of registering the offer document with the Registrar of Companies.

FURTHER PUBLIC OFFER (FPO)

Regulation 102 of SEBI ICDR specifies the provisions for those entities who are not eligible to make a further public
offer. It states that an issuer shall not be eligible to make a further public offer:
(a) if the issuer, any of its promoters, promoter group or directors, selling shareholders are debarred from accessing
the capital market by SEBI;
(b) if any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred
from accessing the capital market by SEBI;
(c) if the issuer or any of its promoters or directors is a wilful defaulter;
(d) if any of its promoters or directors is a fugitive economic offender.
However, the restrictions stated under (a) and (b) above shall not apply to the persons or entities mentioned therein,
who were debarred in the past by SEBI and the period of debarment is already over as on the date of filing of the draft
offer document with SEBI.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Issue of Warrants (Regulations 111)

An issuer shall be eligible to issue warrants in a further public offer subject to the following conditions:
(a) the tenure of such warrants shall not exceed eighteen months from the date of their allotment in the public issue;
(b) a specified security may have one or more warrants attached to it;
(c) the price or formula for determination of exercise price of the warrants shall be determined upfront and at least
twenty-five per cent. of the consideration amount based on the exercise price shall also be received upfront; Provided
that in case the exercise price of warrants is based on a formula, twenty-five per cent. consideration amount based on
the cap price of the price band determined for the linked equity shares or convertible securities shall be received
upfront.
(d) in case the warrant holder does not exercise the option to take equity shares against any of the warrants held by
the warrant holder, within three months from the date of payment of consideration, such consideration made in
respect of such warrants shall be forfeited by the issuer.

Obligations Relating to Issues

In the subsequent section, we will be dealing with the appointment of merchant bankers and other intermediaries by
the issuer company and their obligations relating to the issue such as filing of offer document, maintaining proper due
diligence etc.

Appointment of Merchant Bankers and other Intermediaries/Agencies

Since the process of issue management is of critical importance to the issuer company, the selection of the merchant
banker and other related intermediaries is also of great significance. The Regulation 5 of the SEBI ICDR Regulations
discusses the process of appointing merchant bankers and other intermediaries for the issue which is as discussed
below:

1. The issuer company shall appoint one or more merchant bankers, at least one of which shall be a lead
merchant banker.
2. All the other intermediaries which are appointed in consultation with the lead merchant banker by the issuer
company should be registered with the SEBI.
3. In cases where an issue is managed by more than one merchant banker, the rights, obligations, responsibilities
relating inter‐alia to disclosures, allotment, and refund and underwriting obligations if any, for each merchant
banker shall be predetermined.
4. The issuer company has to enter into an agreement with the lead merchant banker as per the prescribed
format given under the SEBI ICDR Regulations and with the other intermediaries as required under the
respective regulations applicable to the intermediary concerned.
5. In case an issuer makes an issue through the book building process, he shall appoint syndicate members. In
case of any other issue, the issuer company shall appoint bankers to issue at all mandatory collection centers
as specified in the Regulation.
6. The issuer company in consultation with the merchant banker also appoints the accountants and the auditors
who help in reviewing and auditing financials and preparing financial statement as per SEBI (ICDR) Regulations
for inclusion in the Offer Document.
7. The issuer company in consultation with the merchant bankers appoint the printers who are engaged in bulk
printing of the offer document and application forms.
8. The advertising agency(s) are appointed by the issuer company in consultation with the merchant bankers,
who advise the issuer company and the merchant banker on formulation and execution of the media and PR
strategy.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Due Diligence and Preparation of Offer Document

Due Diligence
The Code of Conduct of a merchant banker under the SEBI Regulations requires a Lead Manager, amongst other things,
to exercise due diligence, ensure proper care and exercise independent professional judgment. There is no legal
definition of ‘due diligence’ but it is an important step in every investment related transaction. In the context of a
merchant banker’s function, the objective of due diligence is to collect information about the issuer company that
helps the lead manager assess the disclosures in the offer document in connection with their obligations under
applicable regulations.

Role of External parties in the due diligence process

During the due diligence process, the Lead Manager and the issuer are assisted by external parties such as legal
counsels, statutory auditors and specialised industry experts, if required. The legal counsel may assist the Lead
Manager in carrying out legal documentary due diligence, assisting the issuer in the preparation of the Offer
Documents in compliance with ICDR Regulations, the Companies Act, 2013 and other applicable laws and advising the
lead managers on legal matters relating to the offering.

Preparation of Offer Document

The process of public offering for issue of securities is very closely regulated by SEBI to prevent any wrong-doing on
part of the issuer company. One of the cornerstones of such oversight is on preparation of the offer document that
makes all the disclosures required for investors to make informed investment decisions. In order to issue securities,
an issuer has to file a draft offer document with SEBI through the appointed lead merchant banker and pay the
requisite fees.

Filing of Offer Document

The process of issue of securities is very closely regulated by SEBI to prevent any wrong‐doing on part of the issuer
company. In order to issue securities, an issuer has to file a draft offer document with SEBI through the appointed lead
merchant banker and pay the requisite fees. The Regulation 6 of the SEBI ICDR Regulations deals with the filing of offer
documents with SEBI.

• SEBI may specify changes if any, on the draft offer document within thirty days.
• If SEBI specifies changes on the draft offer document, the issuer and lead merchant banker shall carry out such
changes in the draft offer document and comply with the observations issued by SEBI before registering the
prospectus, red herring prospectus or shelf prospectus, as the case may be, with the RoC or filing the letter of
offer with the designated stock exchange.
• The issuer company shall, simultaneously while registering the prospectus, or filing the letter of offer with the
designated stock exchange or before the opening of the issue, file a copy with SEBI through the lead merchant
banker.
• The lead merchant banker when filing the offer document with SEBI should also file a copy of the document
with the recognized stock exchange where the said securities are proposed to be listed. The offer document
shall also be furnished to SEBI in a soft copy as per the format prescribed in the SEBI ICDR Regulations.

Fees to be paid along with the Offer Document: The SEBI ICDR Regulations prescribes the fees to be paid by the issuer
to SEBI with respect to every draft offer document or in case of fast track issue, every offer document and in case of
updating of any draft offer document.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Documents to be submitted before the opening of the issue: In order to maintain maximum possible transparency,
SEBI requires the lead banker to submit documents regarding the issue process. Regulation 8 of the SEBI ICDR
Regulations provides the details of the documents which are require d to be submitted. The lead merchant banker
shall submit the following to SEB:

• A certificate, confirming that an agreement has been entered into.

• Due diligence certificate as per the format prescribed in the SEBI ICDR Regulation;
• Due diligence certificate from the debenture and certificate confirming compliance of the conditions which
are specified in PART C of Schedule VIII of the Regulations.

Security Deposit: Regulation 7(1): The issuer shall deposit, before the opening of subscription list, and keep deposited
with the stock exchange(s), an amount calculated at the rate of one per cent of the amount of securities offered for
subscription to the public. The amount specified in sub‐regulation shall be deposited in the manner specified by Board
and/or stock exchange. The amount specified in sub‐regulation shall be refundable or forfeitable in the manner
specified by the Board.

Listing Approvals from Stock Exchange

The Issuer is required to enter into a listing agreement with the Stock Exchanges, where the securities of an issuer are
proposed to be listed. The Listing Agreement prescribes the initial conditions and the requirements for continuous
listing on the Stock Exchanges. The compliances to be fulfilled are both time-based and event based compliances. It is
a standard set of Agreement to be entered into by the Companies seeking listing from the stock exchanges.

Application for Listing is required to be made as follows:

(1) The issuer or the issuing company, as the case may be, shall complete the pre-listing formalities within the time
lines specified by SEBI from time to time.
(2) The issuer or the issuing company, as the case may be, shall, make an application for listing, within such period
from the date of allotment as may be specified by SEBI from time to time, to one or more recognized stock exchange(s)
along with the documents specified by stock exchange(s) from time to time.
(3) In the event of failure to make an application for listing by the issuer within the time stipulated in (2) above, or
non-receipt of the listing permission by the issuer from the stock exchange(s) or withdrawal of the ‘Observation Letter’
issued by SEBI, wherever applicable, the securities shall not be eligible for listing and the issuer shall be liable to refund
the subscription monies, if any, to the respective allottees immediately, along with penal interest for each day of delay
at the rate of fifteen percent per annum from the date of allotment.

Listing Agreement states as follows:

Every issuer or the issuing company desirous of listing its securities on a recognised stock exchange shall execute a
listing agreement with such stock exchange in terms of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.

Obligation of stock exchange(s) relating to in-principle approval as under:

The stock exchange(s) shall grant in-principle approval/list the securities or reject the application for in-principle
approval /listing by the issuer or issuing company, as the case maybe, within thirty days from the later of the following
dates:
(a) the date of receipt of application for in-principle approval/listing from issuer;
(b) the date of receipt of satisfactory reply from the issuer, as the case may be, in cases where the stock exchange(s)
has sought any clarification from them.

Listing of further Issues by Issuers already listed on the Stock Exchanges

Issuers whose securities are already listed on the NSE or BSE or both shall apply for admission to listing on the Stock
Exchanges of any further issue of securities made by them. The application for admission shall be made in the forms
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

prescribed in this regard or in such other form or forms as the Relevant Authority may from time to time prescribe in
addition thereto or in modification or substitution thereof.

Draft offer document to be made public: The draft offer document submitted to SEBI has to be made public, for
comments if any, by hosting it on the website of SEBI, the recognized Stock Exchanges on which the issue is to be listed
and the website of the merchant bankers associated with the issue for at least 21 days from the date of the filing.

The issuer either on the date of filing the draft offer document with SEBI or on the next day needs to make a public
announcement in one English national daily newspaper with wide circulation, one Hindi national daily newspaper with
wide circulation and one regional language newspaper with wide circulation at the place where the registered office
of the issuer is situated, disclosing to the public the fact of filing of draft offer document with SEBI and inviting the
public to give their comments to SEBI in respect of disclosures made in the draft offer document.

Dispatch of Issue Material and Distribution

The lead merchant bankers are responsible for the dispatch of the issue material to all the parties concerned. This
involves the dispatch of the offer document and other materials like forms for ASBA (Application Supported by Blocked
Amount) to the designated stock exchanges, syndicate members, underwriters, bankers to the issue, investors’
associations and Self Certified Syndicate Banks in advance.

Opening, Closing and Listing of an issue

According to Regulation 46, an initial public offer shall be kept open for at least three working days and not more than
ten working days. In case of a revision in the price band, the issuer shall extend the bidding (issue) period disclosed in
the red herring prospectus, for a minimum period of three working days, subject to the overall maximum of ten days.
The same requirement applies to force majeure, banking strike or other similar circumstances as well.
Subject to other requirements such as obtaining the listing approval of the stock exchange and execution of the
uniform listing agreement, an issuer has to list the security for trading within 6 days, i.e (T+6) from the date of close
of the issue. While the process for listing in a shorter time of T+3 is on the cards after the introduction of UPI
mechanism for retail individual investors (see Chapter 4), such reduced time frame is yet to be introduced.

Pricing of Issue

An issuer company may determine the price of the specified securities which are offered to the public either `through
book building process19 or in consultation with the lead merchant banker for the issue. In case of Convertible Debt
Securities the issuer may determine the coupon rate and the conversion price of the convertible debt instruments in
consultation with the lead merchant banker or through the book building process.
• With Differential Pricing issuer may offer specified securities at different prices, subject to certain conditions.
• The issuer may mention the price or the price band in the draft prospectus and floor price or price band in the
red herring prospectus and determine the price at a later date before registering the prospectus with the RoC,
provided, the prospectus registered with the RoC will have one price or the specific coupon rate, as per the
case.

Underwriting

In cases, where the issuer makes a public issue through the book building process, such issues shall be underwritten
by, book runners or syndicate members. If QIBs are not able to subscribe to at least 75%, it will not devolve on
Underwriters and the issue will fail. Any under subscription in the QIB category shall not be available for subscription
to any other category in both voluntary/compulsory book built issues.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

The issuer shall enter into underwriting agreement with the book runner, who in turn shall enter into underwriting
agreement with syndicate members, indicating there in the number of specified securities which they shall subscribe
to at the predetermined price in the event of under subscription in the issue.

Issuance Conditions & Procedures

SEBI (ICDR) Regulations also specifies the Issuance Conditions and Procedures. Regulation 32 states the conditions of
allocation in net offer to the public.
(1) In an issue made through the book building process the allocation in the net offer category shall be as follows:
(a) not less than thirty-five percent to retail individual investors;
(b) not less than fifteen percent to non-institutional investors;
(c) not more than fifty percent to qualified institutional buyers, five percent of which shall be allocated to mutual
funds: Provided that the unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated
to applicants in any other category:
Provided further that in addition to five percent allocation available in terms of clause (c), mutual funds shall be eligible
for allocation under the balance available for qualified institutional buyers.

(2) In an issue made through the book building process under sub-regulation (2) of regulation 6, the allocation in the
net offer category shall be as follows:
(a) not more than ten percent to retail individual investors;
(b) not more than fifteen percent to non-institutional investors;
(c) not less than seventy-five percent to qualified institutional buyers, five percent of which shall be allocated to mutual
funds. Provided that the unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated
to applicants in the other category:
Provided further that in addition to five percent allocation available in terms of clause (c), mutual funds shall be
eligible for allocation under the balance available for qualified institutional buyers.

(3) In an issue made through the book building process, the issuer may allocate up to sixty percent of the portion
available for allocation to qualified institutional buyers to anchor investors in accordance with the specified conditions.

(4) In an issue made other than through the book building process, the allocation in the net offer category shall be
made as follows:
i) minimum fifty percent to retail individual investors; and
ii) remaining to: (i) individual applicants other than retail individual investors; and (ii) other investors including
corporate bodies or institutions, irrespective of the number of specified securities applied for; Provided that the
unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in the
other category.

Allocation in net offer to public

In an issue made through the book building process under sub‐regulation (1) of regulation 26, the allocation in the net
offer to public category shall be as follows:

• Not less than 35% to retail individual investors;

• Not less than 15% to non‐institutional investors;
• Not more than 50% to QIBs, 5% of which shall be allocated to mutual funds
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

In an issue made through the book building process under sub‐regulation (2) of regulation 26, the allocation in the net
offer to public category shall be as follows:
• Not more than 10% to retail individual investors;
• Not more than 15% to non‐institutional investors;
• Not less than 75% to QIBs, 5% of which shall be allocated to mutual funds.

Minimum Subscription

The minimum subscription to be received in an issue shall not be less than 90% of the offer through offer document,
provided that in the case of an initial public offer, the minimum subscription to be received shall be subject to
allotment of minimum number of specified securities, as prescribed in Securities Contract (Regulations) Rules, 1957.
In the event of no receipt of minimum subscription, all application money received shall be refunded to the applicants.

VI. Issue Management ‐ General Obligations of Merchant Bankers and Due Diligence
General Obligations of Merchant Bankers with regards to Issue Management

• Prohibition of payment of incentives: No person connected with the issue shall offer any incentive, whether
direct or indirect, in any manner, whether in cash or kind or services or otherwise to any person for making an
application for allotment of specified securities. However, this does not apply to fees or commission for
services rendered in relation to the issue
• Public Communications / Research reports: Any intermediary concerned with the issue shall not issue any
public communication including advertisement, research report and publicity material which contains
projections, estimates, conjectures etc.
• Any advertisement or research report issued by an issuer, any intermediary concerned with the issue or their
associates shall comply with the given regulations.
• Publicly Available Document: The lead merchant banker along with the issuer shall ensure that the contents
of offer documents hosted on the websites as required in the Regulation is same as that of the printed copies
filed with the RoC, SEBI and the stock exchanges.
• Redressal of Investor Grievances: The post‐issue lead merchant bankers should look into the post‐issue
activities such as allotment, refund, dispatch and giving instructions to the syndicate members, Self‐Certified
Syndicate Banks and other intermediaries.
• Post Issue Reports have to be submitted duly in accordance with regulatory requirements.
• Post‐issue Advertisements: The merchant banker related to the post‐issue activities shall ensure that
advertisements giving details relating to over subscription, basis of allotment, value and percentage of all
applications, value and percentage of successful allottees for all applications, date of completion of dispatch
of refund orders or instructions is released within the prescribed time frame the date of completion of the
various activities in at least one English national daily newspaper and one Hindi national daily newspaper with
wide circulation.
• Co‐ordination with other Intermediaries: The post‐issue merchant banker has to maintain close coordination
with the registrars to the issue and arrange to depute its officers to the offices of various intermediaries at
regular intervals after the closure of the issue. This would enable the post‐issue merchant banker to monitor
the flow and processing of applications.
• Miscellaneous responsibilities: The merchant banker has to ensure that all the information contained in the
offer document and the particulars as per the audited financial statements in the offer document are not more
than 6 months old from the issue opening date. Also there are other responsibilities to be complied with.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• Promoters Contribution & shares ineligible for promoter’s contribution: SEBI (ICDR) Regulations, 2009
specified the promoter’s contribution in the public issue. It specifies minimum promoter’s contribution in case
of a public issue or composite issue of convertible securities. Provided that if the project is to be implemented
in stages, the promoters’ contribution shall be with respect to total equity participation till the respective
stage.
• Restriction on Transferability (Lock‐in) of Promoter’s Contribution: In a public issue, the specified securities
held by promoters shall be locked in for the period as given below: Minimum promoter’s contribution
including contribution made by alternative investment funds shall be locked‐in for a period of three years from
the date of commencement of commercial production or date of allotment in the public issue, whichever is
later.
• Eligibility of the Company for issue: The eligibility conditions to be fulfilled by an issuer for making an initial
public offer is specified in Regulation 26 of the SEBI (ICDR) Regulations, 2009. Please go through the booklet
provided to understand the eligibility conditions in detail.
• Corporate Governance and Composition of the Board of Directors: There are specific laws in both Companies
Act and Regulations issued by SEBI with respect to Board and Committee meetings and the resolutions to be
passed therein. The Compliance Officer is required to ensure that the laws for conduct of these meetings and
the information to be provided to the Board for this purpose are complied with.
• Reservation in IPOs: The issuer is permitted to make reservations to certain categories of persons. This is
excluding the promoter’s contribution and the net offer to the public.
• Identification of Promoters and Promoters Group: As per the SEBI ICDR Regulation, promoters and promoters
group includes:
(i) the person or persons who are in control of the issuer;
(ii) the person or persons who are instrumental in the formulation of a plan or program pursuant to which
specified securities are offered to public
(iii) the person or persons named in the offer document as promoters
• Disclosures relating to Group Companies: The lead merchant banker shall review and retain the certificates
confirming the constitution of the promoter group and the group companies; shareholding, board of directors
of the corporate promoters and the group companies, litigation, disassociation by the promoters in the last 3
years and various other confirmations required under the ICDR Regulations, based on which disclosures are
made in the Offer Document in relation to promoters, promoter group and group companies.
• Disclosures relating to Litigations: The legal counsel assists the Lead Merchant Bankers to assess the diligence
process and review litigation related documents, if any. The issuer company is required to immediately inform
the Lead Managers about any new development on any disclosed litigation matter or any new litigation.
• Restriction on Transferability of Promoters’ Contribution: Specified securities held by promoters and persons
other than promoters shall not be transferable from the date of allotment of the specified securities in the
proposed public issue for the period stipulated here below. The certificate of specified securities which are
subject to lock‐in shall contain the inscription non‐transferable and the lock‐in period and in case such
specified securities are dematerialized, the issuer shall ensure that lock‐in is recorded by the depository.
Specified securities held by promoters and locked‐in may be pledged with any scheduled commercial bank or
public financial institution as collateral security for loan granted by such bank or institution, subject to the
given conditions.
• General Information Document (GID): SEBI vide its circular dated October 23, 2013 has issued General
Information Document. It states that the components that shall be ensured by the lead manager.

Preferential Issue

• Requirements: The lead manager shall ensure that listed issuer makes a preferential issue of specified
securities, if only the given conditions are met with.
• Disclosures: The issuer shall, in addition to the disclosures required under section 102 of the Companies Act,
2013 or any other applicable law, disclose the following in the explanatory statement to the notice for the
general meeting proposed for passing resolution.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• The issuer shall place a copy of the certificate of its statutory auditor before the general meeting of the
shareholders, considering the proposed preferential issue, certifying that the issue is being made in
accordance with the requirements of these regulations.
• The special resolution shall specify the relevant date on the basis of which price of the equity shares to be
allotted on conversion or exchange of convertible securities shall be calculated.

Pricing

• If the equity shares of the issuer have been listed on a recognized stock exchange for a period of 26 weeks or
more as on the relevant date, the equity shares shall be allotted at a price not less than higher of given
conditions.
• If the equity shares of the issuer have been listed on a recognised stock exchange for a period of less than 26
weeks as on the relevant date, the equity shares shall be allotted at a price not less than the higher of the
given conditions.
• Where the price of the equity shares is determined in terms of sub‐regulation, such price shall be recomputed
by the issuer on completion of twenty six weeks from the date of listing, and if such recomputed price is higher
than the price paid on allotment, the difference shall be paid by the allottees to the issuer.
• Where the shares are not frequently traded, the price determined shall take into account parameters including
book value, comparable trading multiples, and such other parameters.

Lock‐in of Specified Securities

• The securities allotted on preferential basis to promoter or promoter group and the equity shares allotted to
exercise of options attached to warrants issued to promoter or promoter group shall be locked‐in for a period
of three years from date of trading approval.
• The securities allotted on preferential basis to persons other than promoter and promoter group and the
equity shares allotted to exercise of options attached to warrants issued to such persons shall be locked in for
a period of one year from the date of trading approval.
• The lock‐in of equity shares allotted pursuant to conversion of convertible securities other than warrants,
issued on preferential basis shall be reduced to the extent the convertible securities have already been locked‐
in.
• The equity shares issued on preferential basis pursuant to a scheme of corporate debt restructuring as per the
Corporate Debt Restructuring framework specified by the Reserve Bank of India shall be locked‐in for a period
of one year from the trading approval

Qualified Institutions Placement

• The lead manager shall ensure that a listed issuer making Qualified Institutional Placement (QIP) shall satisfy
the required conditions.
• The issuer company shall also furnish a copy of the placement document, a certificate confirming compliance
with the provisions related to Qualified Institutional Placement while submitting application for seeking in‐
principle approval from the stock exchanges.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Pricing and Restrictions on Allotment: The QIP shall be made at a price not less than the average of the weekly high
and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks
preceding the relevant date. Provided that the issuer may offer a discount of not more than five per cent.

Minimum number of allottees: As per the SEBI regulations, the minimum number of allottees for each placement of
eligible securities made under QIP shall not be less than:
• 2, where the size is less than or equal to Rs.250 crore;
• 5, where the issue size is greater than Rs.250 crore, subject to the condition that no single allottee shall be
allotted more than 50% of the issue.

Restrictions on amount rose: The aggregate of the proposed QIP and all previous QIPs made by the issuer in the same
financial year shall not exceed 5 times the net worth of the issuer as per the audited balance sheet of the previous
financial year.

Rights issue:

• Issuer shall not make a rights issue of equity shares, unless it has made reservation of equity shares of the
same class in favor of the holders of outstanding compulsorily convertible debt instruments if any in
proportion to the convertible part thereof.
• The issue price is decided before determining the record date which shall be determined in consultation with
the designated stock exchange.
• A rights issue shall be open for subscription for a minimum period of 15 days and a maximum period of 30
days.

Pre‐Issue Advertisement for Rights Issue: The issuer has to issue an advertisement for rights issue disclosing the
regulatory requirements. The advertisement shall be made in at least 1 English, 1 Hindi national daily newspaper with
wide circulation, and 1 regional language daily newspaper with wide circulation at the place where registered office
of the issuer is situated, at least three days before the date of opening of the issue.

Reservation for employees along with rights issue: Subject to other applicable provision of these regulations the
issuer may make reservation for employees along with rights issue subject to the condition that value of allotment to
any employee shall not exceed two lakhs rupees.

Utilization of funds raised through rights issue: As per the SEBI (ICDR), the issuer shall utilize the funds collected in
rights issues after the finalization of the basis of allotment.

Manner of disclosures in the offer document: The offer document shall contain all material disclosures which are true
and adequate so as to enable investors make informed investment decisions. The red‐herring, shelf prospectus and
prospectus shall necessarily contain the regulatory requirements.

Indian Depository Receipts

Eligibility:

An issuing company making an issue of IDR shall also satisfy the following:

• The issuing company is listed in its home country;

• The issuing company is not prohibited to issue securities by any regulatory body;
• The issuing company has a track record of compliance with securities market regulations in its home country.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Minimum Subscription:

• For Non‐Underwritten Issues if the issuing company does not receive the minimum subscription of 90% of the
offers, the company shall forthwith refund the subscription amount received.
• For Non‐Underwritten Issues if the issuing company fails to refund the entire subscription amount within 15
days from the date of the closure of the issue, it is liable to pay the amount with interest to the subscribers at
the rate of 15% per annum for the period of delay.
• For Underwritten Issues if the company does not receive the minimum subscription of 90% of the, the issuing
company shall forthwith refund the entire subscription amount received with interest to the subscribers at
the rate of 15% per annum for the period of delay beyond 60 days.

Fungibility: The Indian Depository Receipts shall be fungible into underlying equity shares of the issuing company in
the manner specified by the Board and Reserve Bank of India, from time to time.

Post Issue Reports: The merchant banker has to submit the post‐issue reports to SEBI as follows:

• Initial post‐issue report shall be filed within 3 days of closure of the issue
• Final post‐issue report shall be filed within 15 days of the date of finalization of basis of allotment or within 15
days of refund of money in case of failure of issue.
•

Finalization of basis of allotment: In consultation with the post‐issue lead merchant bankers and the registrars to the
issue, the executive director or managing director of the stock exchange, where the IDRs are proposed to be listed
shall ensure that the basis of allotment is finalized in a fair and proper manner as per SEBI (ICDR) Regulation.

VII. Other Merchant Banking Activities ‐ Mergers, Acquisitions & Takeovers

Merger is a broader term and it denotes a combination of two or more companies to form a single entity, in which
either one or both lose their identity and a new company is formed. When both companies lose their identity, a new
company is formed and existing companies stocks are surrendered.

An acquisition is the purchase of one business or company by another company or other business entity. Consolidation
occurs when two companies combine together to form a new enterprise altogether, and neither of the previous
companies survives independently.

Takeover is the acquisition of substantial shares or voting rights for the purpose of seeking management control of
the company. If management of a prospective selling company is unwilling to negotiate a transaction with a
prospective buyer, the buyer may make a direct bid to the seller’s shareholders and purchase sellers shares from the
market to acquire a controlling stake in the sellers company.
Mergers and Acquisitions in India are regulated by the following legislations and regulators:

• The Companies Act, 2013

• The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
• The Foreign Exchange Management Act, 1999
• The Reserve Bank of India and the RBI Act, 1934.
• The Income Tax Act, 1961
• The Competition Act 2002
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

The SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011 ensure greater transparency, fairness,
and equitable treatment to all investors, timeliness and accuracy of disclosure of information, prevention of frivolous
offers and enforcement against violations. The major thrust of these Regulations is to ensure that when substantial
number of shares changes hands, that is, one group sells a controlling block of shares to another; the minority
shareholders also get the opportunity to sell their shares at the fair price.

The Regulations envisage acquisitions for:

• Change in Control of Management
• Consolidation of Holdings
• Substantial Acquisition of shares or voting rights

Substantial acquisition of shares or voting rights: As per the SEBI SAST Regulation, an acquirer shall not acquire shares
or voting rights in a target company which entitle them to exercise 25% or more of the voting rights in the target
company unless they have made a public announcement of an open offer for acquiring shares of such target company.

Further, such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights
exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the
maximum permissible non‐public shareholding.

Offer Size: The open offer for acquiring shares to be made by the acquirer and persons acting in concert with him shall
be for at least 26% of total shares of the target company. The open offer shall be for acquisition of at least such number
of shares as would entitle the holder thereof to exercise an additional 10% of the total shares of the target company,
and shall not exceed such number of shares as would result in the post‐acquisition holding of the acquirer and persons
acting in concert with him exceeding the maximum permissible non‐public shareholding applicable to such target
company. Further, in case of a competing offer being made, the acquirer who has voluntarily made a public
announcement of an open offer shall be entitled to increase the number of shares for which the open offer has been
made to such number of shares as he deems fit.

Offer Price: Offer price is different in the following cases;

• In case of direct acquisition of shares or voting rights in, or control over the target company, and indirect
acquisition of shares of voting rights in, or control over the target company.
• In case of an indirect acquisition of shares or voting rights in, or control over the target company
• In such cases, where the offer price is incapable of being determined as per provisions mentioned above, the
offer price shall be the fair price of shares of the target company.
• In the case of an indirect acquisition
• Where the acquirer or any person acting in concert with him has any outstanding convertible instruments
convertible into shares of the target company at a specific price
• The price paid for shares of the target company shall include any price paid or agreed to be paid for the shares
or voting rights in, or control over the target company.
• In cases, where the acquirer has acquired or agreed to acquire whether by himself or through or with persons
acting in concert with him any shares or voting rights in the target company.
• The price parameters shall be adjusted by the acquirer in consultation with the manager to the offer, for
corporate actions such as issuances pursuant to rights issue, bonus issue, stock consolidations, stock splits,
payment of dividend, de‐mergers and reduction of capital, where the record date for effecting such corporate
actions falls prior to 3 working days before the commencement of the tendering period.
• Where the acquirer or persons acting in concert with him acquires shares of the target company during the
period of 26 weeks after the tendering period at a price higher than the offer price.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• Where the open offer is subject to a minimum level of acceptances In case of any indirect acquisition the offer
price shall stand enhanced by an amount equal to a sum determined at the rate of 10% p.a. for the period
between the earlier of the date on which the primary acquisition.
• The offer price for partly paid up shares shall be computed as the difference between the offer price and the
amount due towards call‐in‐arrears including calls remaining unpaid with interest
• The offer price for equity shares carrying differential voting rights shall be determined by the acquirer and the
manager to the open offer.
• In cases, where the price parameters as mentioned in the SAST regulation is not available or denominated in
Indian Rupees.

Exemptions

The SEBI SAST provides cases which are exempt from the obligation to make an open offer as discussed above. We will
discuss some of them in this section but for the complete list of exemptions please refer to regulation 10 & 11 of the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011. There are general exemptions and some are
granted by the SEBI but subject to the fulfillment of conditions given.

• SEBI may grant exemption from the obligation to make an open offer for acquiring shares under the SEBI SAST
regulations subject to conditions imposed by SEBI and after recording it in writing.
• SEBI may after recording the reasons, grant relaxation from strict compliance with any procedural requirement
as mentioned in the SEBI SAST, subject to conditions imposed by SEBI
• For seeking exemption, the acquirer shall file an application with SEBI, supported by a duly sworn affidavit,
giving details of the proposed acquisition and the grounds on which the exemption has been sought. The
acquirer or the target company, as the case may be, shall along with the application pay a non‐refundable fee
of Rs. five lakh, by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode
allowed by RBI or by way of banker’s cheque or demand draft payable in Mumbai in favour of SEBI.
• SEBI after hearing the applicant and considering all relevant facts and circumstances, pass a reasoned order
either granting or rejecting the exemption or relaxation sought. The order shall be placed on the SEBI Website.
• Acquisition pursuant to a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code,
2016.

Process of an open offer:

Appointment of Merchant Banker: SEBI SAST prescribes that before making any public announcement of offer, the
acquirer shall appoint a SEBI registered merchant banker who shall not be an associate of the acquirer. A public
announcement is an announcement made in the newspapers by the acquirer primarily disclosing his intention to
acquire shares of the target company from existing shareholders by means of an open offer.

General obligations of the Merchant banker:

SEBI SAST also lays down the general obligations of the Merchant Banker which is discussed in the section below. The
manager to the open offer shall ‐

• Ensure prior to public announcement being made that the acquirer is able to implement the open offer; and
also regarding the firm arrangements for funds through verifiable means have been made.
• Ensure that the contents of the public announcement, the detailed public statement and the letter of offer
and the post offer advertisement are true, fair and adequate in all material aspects, not misleading in any
material particular, are based on reliable sources, state the source wherever necessary, and are in compliance
with the requirements under the SEBI SAST.
• Furnish to SEBI a due diligence certificate along with the draft letter of offer filed with SEBI.
• Ensure that market intermediaries engaged for the purposes of the open offer are registered with Board.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• Exercise diligence, care and professional judgment to ensure compliance with these regulations.
• Not deal on his own account in the shares of the target company during the offer period.
• File a report with SEBI within 15 working days from the expiry of the tendering period, in the form specified.

Timing: The public announcement shall be made in accordance with the restrictions regarding the content and the
publication, on the date of agreeing to acquire shares or voting rights in, or control over the target company. The
public announcement made under voluntary offer process shall be made on the same day as the date on which the
acquirer takes the decision to voluntarily make a public announcement of an open offer for acquiring shares of the
target company.

The public announcement made under voluntary offer process shall be made on the same day as the date on which
the acquirer takes the decision to voluntarily make a public announcement of an open offer for acquiring shares of the
target company.

Publication: The public announcement shall be sent to all the stock exchanges on which the shares of the target
company are listed. The stock exchanges shall forthwith disseminate such information to the public. A copy of the
public announcement shall be sent to SEBI and to the target company at its registered office within 1 working day of
the date of the public announcement. Simultaneously with publication of such detailed public statement in the
newspapers, a copy of the same shall be sent to ‐

• SEBI through the manager to the open offer

• Stock exchanges on which the shares of the target company are listed, and the stock exchanges shall forthwith
disseminate such information to the public
• Target Company at its registered office and the target company shall forthwith circulate it to the members of
its board.

Filing of Letter of Offer with SEBI: A letter of offer is a document addressed to the shareholders of the target company
containing disclosures of the acquirer/ persons acting in concert, target company, their financials, justification of the
offer price, number of shares to be acquired from the public, purpose of acquisition, future plans of acquirer, if any,
regarding the target company, change in control over the target company, if any, the procedure to be followed by
acquirer in accepting the shares tendered by the shareholders and the period within which all the formalities
pertaining to the offer would be completed.

The Merchant Banker will incorporate in the letter of offer the comments made by SEBI and then send the letter of
offer along with the blank acceptance form, to all the shareholders whose names appear in the register of the company
on the Specified Date.

Provision of Escrow:

• The acquirer should create an escrow account towards security for performance of his obligations under the
SAST regulations, at least two working days prior to the date of the detailed public statement of the open offer
for acquiring shares.
• The consideration payable under the open offer shall be computed as per provisions given in the SAST and in
case of upward revision of the offer price or of the offer size; the value of the escrow amount shall be
computed on the revised consideration.
• The escrow account must be in the specified form.
• In the event of the escrow account being created by way of a bank guarantee or by deposit of securities, the
acquirer shall also ensure that at least 1% of the total consideration payable is deposited in cash.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

• The manager to the open offer shall not release the escrow account until the expiry of thirty days from the
completion of payment of consideration to shareholders who have tendered their shares in acceptance of the
open offer.
• In the event of non‐fulfillment of obligations under the SAST by the acquirer SEBI may direct the manager to
the open offer to forfeit the escrow account or any amounts lying in the special escrow account.

Other Procedures Requirements for Open Offer Process

• Simultaneously with the filing of the draft letter of offer with SEBI, the acquirer shall send a copy of the draft
letter of offer to the target company at its registered office address and to all stock exchanges where the
shares of the target company are listed.
• The letter of offer shall be dispatched to the shareholders whose names appear on the register of members
of the target company as of the identified date.
• Simultaneously with the dispatch of the letter of offer, the acquirer shall send the letter of offer to the
custodian of shares underlying depository receipts, if any, of the target company.
• Irrespective of whether a competing offer has been made, an acquirer may make upward revisions to the offer
price, and subject to the other provisions of these regulations.
• The acquirer shall disclose during the offer period every acquisition made by the acquirer or persons acting in
concert with him of any shares of the target company in such form as may be specified in the prescribed form.
• The acquirer shall issue an advertisement 1 working day before the commencement of the tendering period,
announcing the schedule of activities for the open offer, the status of statutory and other approvals.
• The acquirer shall be responsible to pursue all statutory approvals required by the acquirer in order to
complete the open offer without any default, neglect or delay.

Procedure followed in Conditional offer

Where an open offer is made conditional upon minimum level of acceptances, the acquirer and persons acting in
concert with him shall not acquire, during the offer period, any shares in the target company except under the open
offer and any underlying agreement for the sale of shares of the target company pursuant to which the open offer is
made.

Payment of consideration

The acquirer shall open a special escrow account with a SEBI registered banker to an issue and deposit the amount of
consideration (in cash). The cash so deposited makes up for the entire sum due and payable to the shareholders as
consideration payable under the open offer.

The acquirer shall complete payment of consideration whether in the form of cash, or as the case may be, by issue,
exchange or transfer of securities, to all shareholders who have tendered shares in acceptance of the open offer. Any
unclaimed balances, lying to the credit of the special escrow account at the end of seven years from the date of deposit
thereof, shall be transferred to the Investor Protection and Education Fund established under the Securities and
Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

VIII. Other Merchant Banking Activities ‐ Disinvestment, Buyback of Equity Shares

Disinvestment means the direct or indirect sale by the Central Government or any State Government or by a
government company, as the case may be, of shares or voting rights in, or control over, a target company, which is a
public sector undertaking. Transactions related to Government entities can be either a disinvestment transaction or
an advisory transaction.

Disinvestment transactions are generally of two types:

• In the nature of an offer for sale by the selling shareholder through the prospectus, at times this could be a
combination of a fresh issue and an offer for sale or
• In the nature of Offer for Sale through the Stock Exchange Mechanism.

Role of Merchant Banker in Disinvestment Transactions

Advisory transactions for a Government entity could be for a bonus issue or buy‐back or any other advisory transaction.
In such cases, the role of a Merchant Banker is similar to the transactions of advisory nature for any entity in the private
sector. If a Merchant Banker has been mandated to provide advisory services to any Government entity then DPE
guidelines have to be kept in mind, for example, if a bonus issue is being recommended then the impact it will have
on their rating due to the expanded equity base and a likelihood of lower EPS.

In order to review the performance of the PSU, a composite score based on its performance for the last three years
would be calculated. For calculation of composite score, 6 performance indicators have been identified based on their
general applicability to the PSUs. The performance indicators have been chosen so as to capture the performance of
PSUs irrespective of their belonging to manufacturing sector or services sector. The 6 identified performance indicators
are –
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

Role of Merchant Banker in Buy back of Equity Shares

SEBI (Buy‐back of Securities) Regulations is applicable to buy‐back of shares or other specified securities of a company
listed on a stock exchange. However, a company listed on a stock exchange shall not buy‐back its shares or other
specified securities so as to delist its shares or other specified securities from the stock exchange. A company shall
buy‐back its shares or other specified securities using any of the following methods:

• From the existing security‐holders on a proportionate basis through the tender offer;
• From the open market through
o book‐building process
o stock exchange
• From odd‐lot holders.

Provided that no offer of buy‐back for fifteen per cent or more of the paid up capital and free reserves of the company
shall be made from the open market. A company shall not buy‐back its shares or other specified securities from any
person through negotiated deals, whether on or of the stock exchange or through spot transactions or through any
private arrangement. Any person or an insider shall not deal in securities of the company on the basis of unpublished
information relating to buy‐back of shares or other specified securities of the company. A company shall not make any
offer of buy‐back within a period of one year reckoned from the date of closure of the preceding offer of buy‐back, if
any. The procedure for buy‐back of securities has been prescribed in the SEBI Regulations, 1998.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

The public announcement shall contain the following information:

• The Public announcement shall be dated and signed on behalf of the Board of Directors of the company by its
manager or secretary, if any, and by not less than two directors of the company one of whom shall be a
managing director where there is one.
• The Public announcement shall be dated and signed on behalf of the Board of Directors of the company by its
manager or secretary, if any, and by not less than two directors of the company one of whom shall be a
managing director where there is one.
• A full and complete disclosure of all material facts prescribed by the regulations should be made. The
disclosures include:
o Part A: Disclosures under Regulation 5(1) and 8(1)
o Part B: Disclosures under Regulation 15(d)
o Disclosures in the Letter of Offer

Role of Merchant Banker in Delisting of Shares

SEBI (Delisting of Equity Shares) Regulations, 2009 apply to delisting of equity shares of a company from all or any of
the recognized stock exchanges where such shares are listed. Nothing in the regulations shall apply to any delisting
made pursuant to a scheme sanctioned.

As per these regulations, before making the public announcement, the acquirer or promoter shall appoint a merchant
banker registered with SEBI. It shall be the responsibility of the promoter and the merchant banker to ensure
compliance with the provisions as stated by SEBI in its regulations. Also before the public announcement, the acquirer
or promoter shall open an escrow account and deposit therein the total estimated amount of consideration calculated
on the basis of the floor price and the number of equity shares outstanding with public shareholders.

The acquirer or promoter is required to dispatch the letter of offer to the public shareholders of equity shares, not
later than 2 working days from the date of the public announcement, The letter of offer shall contain all the disclosures
made in the public announcement and such other disclosures.. A promoter or a person acting in concert with any of
the promoters shall not make a bid in the offer and the merchant banker shall take necessary steps to ensure
compliance with this provision.

Role of Merchant Bankers in Issue and Listing of Debt Securities

The SEBI (Issue and Listing of Debt Securities) Regulations, 2008 applies to ‐
• Public issue of debt securities
• Listing of debt securities issued through public issue or on private placement basis on a recognized stock
exchange.
The following are the important points to be kept in mind in case of issuance of debt securities
• Shelf Prospectus can be issued only by a certain category of issuers.
• The issuer may decide the amount of minimum subscription which it seeks to raise by issue of debt securities
and disclose the same in the offer document.
• Security has to be created within a specified time limit for debt securities which are secured.
• Debenture redemption reserve needs to be created.
• Issuers are allowed to retain over‐subscription money up to a maximum of 100% of the base issue size.
• The debt securities have to be secured instruments.
• In case of private placement of debt securities, there is a limit on the number of potential investors who can
be approached, in the event this limit is breached, it shall be deemed to be a public issue and all requirements
of a public issue shall apply.
• In case of public issue of debt securities, online applications are permitted, ASBA facility can be availed by
investors and the post issue timelines applicable for public issue of equity shall be applicable.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

The Lead Merchant Banker shall ensure that all comments received on the draft offer document are suitably addressed
prior to the filing of the offer document with the Registrar of Companies. The issuer may determine the price of debt
securities in consultation with the lead merchant banker and the issue may be at fixed price or the price may be
determined through book building process in accordance with the procedure as may be specified by SEBI.

Role of Merchant Banker in Share Based Employee Benefits

Share Based Employee Benefits apply to any company whose shares are listed on any recognized stock exchange in
India. The Company shall appoint a registered Merchant Banker for the implementation of Share Based Employee
Benefits as per the regulations for the implementation of schemes covered by these regulations till the stage of
obtaining in‐principal approval from the stock exchanges in accordance with clause (b) of regulation 10 of SEBI (share
based employee benefits) regulation.

Role of Merchant Banker in cases where exit opportunity is required to be given to dissenting shareholders

The provisions of this Chapter shall apply to an exit offer made by the promoters or shareholders in control of an issuer
to the dissenting shareholders in terms) of the Companies Act, 2013, in case of change in objects or variation in the
terms of contract referred to in the prospectus. The provisions of this Chapter shall not apply where there are neither
identifiable promoters nor shareholders in control of the listed issuer.

Listing on Institutional Trading Platform

SEBI ICDR regulates listing of specified securities exclusively on the institutional trading platform either pursuant to
public issue or otherwise. "Institutional trading platform" means the trading platform for listing and trading of
specified securities of entities that comply with the eligibility criteria specified in regulation 106Y; the institutional
trading platform shall be accessible to institutional investors and non-institutional investors.

Role of Merchant Banker in Issue of Securities by Small and Medium Enterprises (SME)

SME exchange means a trading platform of a recognized stock exchange having nationwide trading terminals
permitted by the SEBI to list the specified securities issued in accordance with the regulations and includes stock
exchange granted recognition for this purpose but does not include the Main Board.

It includes:
• Filing of offer document and due diligence certificate.
• Underwriting by Merchant Bankers and Underwriters
• Minimum Application Value: The issuer shall stipulate in the offer document, the minimum application size
in terms of number of specified securities which shall not be less than one lakh rupees per application.
• Minimum Number of Allottees: No allotment shall be made pursuant to any initial public offer, if the number
of prospective allottees is less than fifty.
• Migration to SME Exchange: A listed issuer whose post‐issue face value capital is less than twenty five crore
rupees may migrate its specified securities to SME exchange if its shareholders approve such migration by
passing a special resolution through postal ballot to this effect and if such issuer fulfills the eligibility criteria
for listing laid down by the SME exchange.
• Migration to Main Board – An issuer, whose specified securities are listed on SME Exchange and whose post
issue face value capital is more than ten crore rupees and upto twenty five crore rupees, may migrate its
securities to Main Board ( Main Exchange )
• Market Making – The merchant banker shall ensure compulsory market making through the stock brokers of
SME Exchange.
 NISM SERIES IX – MERCHANT BANKING EXAM
SHORT NOTES BY PASS4SURE.IN

PLEASE NOTE, THESE ARE SHORT IMPORTANT NOTES EXTRACTED FROM THE NISM BOOK.
ITS ADVISABLE TO READ THE NISM BOOK TO GET FULL KNOWLEDGE.

TO GET THE UPDATED QUESTION BANK WHICH CONTAIN RECENT VERY IMP

Q&As WITH EXPLANATIONS, PLEASE VISIT WWW.PASS4SURE.IN

OVER 96% PASS OUT RATIO !!

FOR ANY QUERY – PLEASE WRITE TO [email protected]

ALL THE VERY BEST FOR YOUR EXAMS

TEAM PASS4SURE