MERCHANT BANKING and its nuances .pptx

Introduction to merchant banking and its nuances

1. MERCHANT BANKING C.AKILESH

2. INTRODUCTION - COMMERCIAL BANKS OFFER SERVICES TO THE GENERAL PUBLIC, BUT THERE ARE SOME BANKS WHICH OFFER SERVICES TO COMPANIES AND INVESTORS. 1.INVESTMENT BANKS 2.MERCHANT BANKS

3. DIFFERENCE BETWEEN INVESTMENT BANKS AND MERCHANT BANKS AS THE TWO BANKS OFFER SIMILAR SERVICES TO THE CLIENTS, THEY ARE COMMONLY MISCONTRUED, HOWEVER THEY ARE DIFFERENT. INVESTMENT BANK IS A BANKING COMPANY THAT ACTS AS AN INTERMEDIARY BETWEEN THE CLIENT AND INVESTING PUBLIC, BY HELPING THEM IN RAISING FUNDS. ON COTRARY, A MERCHANT BANK IS A BANK THAT UNDERTAKES INTERNATIONAL FINANCE AND UNDERWRITING OF SECURITIES. THEY PROVIDE SERVICES LIKE FUND RAISING , BROKERAGE TO BUSINESS HOUSES AND ACTS AS A FINANCIAL ADVISORY TO THEM.

4. DEFINITION - “ AN ORGANISATION THAT UNDERWRITES SECURITIES FOR CORPORATIONS, ADVISES SUCH CLIENTS ON MERGERS AND IS INVOLVED IN THE OWNERSHIP OF COMMERCIAL VENTURES ” - MR.ROSENBERG “ANY PERSON WHO IS ENGAGED IN THE BUSINESS OF ISSUE MANAGEMENT EITHER BY MAKING ARRANGEMENTS REGARDING SELLING, BUYING OR SUBSCRIBING TO THE SECURITIES AS MANAGER , CONSULTANT ADVISER OR ONE RENDERING CORPORATE ADVISORY SERVICES IN RELATION TO SUCH ACTIVITIES IN THE MANAGEMENT ’’ - MOF INDIA

5. MERCHANT BANKING REGULATIONS- TO ACT AS A MERCHANT BANKER, A PERSON OR FIRM SHOULD HOLD A CERTIFICATE GRANTED BY THE REGULATOR – THE SECURITIES AND EXCHANGE BOARD OF INDIA. SEBI REGULATIONS PROVIDE FOR 4 CATEGORIES OF MERCHANT BANKERS. CATEGORY 1 – IT WILL TAKE UP ACTIVITIES RELATED TO ISSUE MANAGEMENT. CATEGORY 2 – ALLOWED TO CARRY THE ROLE OF ADVISOR, CONSULTANT, CO-MANAGER, UNDERWRITER AND PORTFOLIO MANAGER. CATEGORY 3 – ALLOWED TO ACT AS AN UNDERWRITER, ADVISOR AND CONSULTANT. CATEGORY 4 – ONLY ALLOWED TO ACT AS ADVISOR OR CONSULTANT.

6. CAPITAL ADEQUACY NORMS- CATEGORY 1 – Rs.5 CRORES CATEGORY 2 – Rs.50 LAKHS CATEGORY 3 – Rs.20 LAKHS CATEGORY 4 - NIL

7. GUIDELINES FOR MERCHANT BANKERS- SEBI’s AUTHORIZATION IS A MUST TO ACT AS A MERCHANT BANKERS. AUTHORIZATION CRITERIA INCLUDES PROFESSIONAL QUALIFICATION IN FINANCE, LAW OR BUSINESS MANAGEMENT. INFRASTRUCTURE LIKE OFFICE SPACE, EQUIPMENT AND MAN POWER. CAPITAL ADEQUACY. PAST TRACK OF RECORD, EXPERIENCE, GENERAL REPUTATION AND FAIRNESS IN ALL TRANSACTIONS. EVERY MERCHANT BANKER MUST MAINTAIN COPIES OF BALANCE SHEET, PROFIT AND LOSS ACCOUNT,ETC.

8. HALF- YEARLY UNAUDITED RESULTS SHOULD BE SUBMITTED TO THE SEBI. SEBI HAS BEEN VESTED WITH THE POWER TO SUSPEND OR CANCEL THE AUTHORIZATION IN CASE OF VIOLATION OF THE GUIDELINES. EVERY MERCHANT BANKER SHALL APPOINT A ‘COMPLIANCE OFFICER’ TO MONITOR COMPLIANCE OF THE ACT. SEBI HAS THE RIGHT TO SEND INSPECTING AUTHORITY TO INSPECT THE BOOKS OF ACCOUNTS, RECORDS ETC…OF MERCHANT BANKERS.

9. INSPECTIONS WILL BE CONDUCTED BY SEBI TO ENSURE THAT PROVISIONS OF THE REGULATIONS ARE PROPERLY COMPLIED. AN INITIAL AUTHORISATION FEE, AN ANNUAL FEE AND A RENEWAL FEE MAY BE COLLECTED BY THE SEBI. A LEAD MANAGER HOLDING A CERTIFICATE UNDER CATEGORY 1 SHALL ACCEPT A MINIMUM UNDERWRITING OBLIGATION FEE OF 5% OF SIZE OF ISSUE OR RS.25 LAKHS WHICHEVER IS LESS.

10. CODE OF CONDUCT : SHOULD MAKE ALL THE EFFORTS TO PROTECT THE INTEREST OF INVESTORS. SHOULD MAINTAIN HIGH STANDARD OF INTEGRITY, DIGNITY AND FAIRNESS IN CONDUCT OF THE BUSINESS. SHOULD FULFILL ALL THE OBLIGATIONS IN A PROFESSIONAL AND ETHICAL MANNER. SHOULD NOT DISCRIMINATE AMONG THE CLIENTS. SHOULD ENSURE THAT THE PROSPECTUS, LETTER OF OFFER ETC….IS AVAILABLE TO THE INVESTORS AT THE TIME OF ISSUE.

11. SHOULD RENDER BEST POSSIBLE ADVICE TO ITS CLIENTS. ANY PENAL ACTION TAKEN BY SEBI MUST BE INFORMED TO THEIR CLIENTS. SHOULD INFORM THE BOARD ABOUT ANY LEGAL PROCEEDINGS INITIATED AGAINST IT. SHOULD ABIDE BY THE RULES OF “SECURITIES AND EXCHANGE BOARD OF INDIA REGULATIONS, 2013 ”. SHALL DEVELOP ITS OWN INTERNAL CODE OF CONDUCT FOR GOVERNING ITS INTERNAL OPERATIONS. SHOULD ENSURE THAT ANY PERSON IT EMPLOYS MUST HAVE THE CAPACITY TO BE A MERCHANT BANKER. IT IS RESPONSIBLE FOR THE ACT OF ITS EMPLOYEES AND AGENTS. SHOULD NOT CREATE A FALSE MARKET OR MANIPULATE PRICE.

12. THANK YOU BY- C. AKILESH