Bankers to an Issue, Brokers to an Issue

Bankers to an Issue

The bankers to an issue are engaged in activities such as acceptance of applications along with application money from the investors in respect of issues of capital and refund of application money.

Registration

To carry on activity as a banker to issue, a person must obtain a certificate of registration from the SEBI. The SEBI grants registration on the basis of all the activities relating to banker to an issue in particular with reference to the following requirements:

a) The applicant has the necessary infrastructure, communication and data processing facilities and manpower to effectively discharge his activities.

b) The applicant/any of the directors of the applicant is not involved in any litigation connected with the securities market/has not been convicted of any economic offence.

c) The applicant is a scheduled bank.

d) Grant of a certificate is in the interest of the investors.

A banker to an issue can apply for the renewal of his registration three months before the expiry of the certificate. Every banker to an issue had to pay to the SEBI an annual fee of Rs.2.5 lakhs for the first two years from the date of initial registration, and Rs.1 lakh for the third year to keep his registration in force. The renewal fee to be paid by him annually for the first two years was Rs.1 lakh and Rs.20,000 for the third year. Since 1999, schedule of fee is Rs.5 lakhs as initial registration fee and Rs.2.5 lakhs renewal fee every three years from the fourth year from the date of initial registrations. Non-payment of the prescribed fee may lead to the suspension of the registration certificate.

General Obligations and Responsibilities Furnish INFORMATION When required, a banker to an issue has to furnish to the SEBI the following information:

a) The number of issues for which he was engaged as a banker to an issue.

b) The number of application/details of the application money received.

c) The dates on which applications from investors were forwarded to the issuing company /registrar to an issue.

d) The dates/amount of refund to the investors.

DBA 1724 Books of Account/Record/Documents

A banker to an issue is required to maintain books of accounts/records/documents for a minimum period of three years in respect of, inter-alia, the number of applications received, the names of the investors, the time within which the applications received were forwarded to the issuing company/registrar to the issue and dates and amounts of refund money to investors.

Disciplinary Action by the RBI

If the RBI takes any disciplinary action against a banker to an issue in relation to issue payment, the latter should immediately inform the SEBI. If the banker is prohibited from carrying on his activities as a result of the disciplinary action, the SEBI registration is automatically deemed as suspended/cancelled.

Code of Conduct for Bankers to Issue

A banker to an issue should:

• Make all efforts to protect the interest of investors.
• Observe high standards of integrity and fairness in the conduct of its business.
• Fulfill its obligations in a prompt, ethical and professional manner.
• At all times exercise due diligence, ensure proper care and exercise independent professional judgment
• Not any time act in collusion with other intermediates over the issuer in a manner that is detrimental to the investor
• Endeavour to ensure that:
• a) inquiries from investors are adequately dealt with.
• b) grievances of investors are redressed in a timely and appropriate manner.
• c) where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
• Not

a) Allow blank applications forms bearing brokers stamp to be kept the bank premises or peddled anywhere near the entrance of the premises.

b) Accept applications after office hours or after the date of closure of the issue or on bank holidays.

c) After the closure of the public issue accept any instruments such as Cheques/ demand drafts/stock invests from any other source other than the designated registrar to the issue.

d) Part with the issue proceeds until listing permission is granted by the stock exchange to the body corporate.

e) Delay in issuing the final certificate pertaining to the collection figures to the registrar to the issue, the lead manager and the body corporate and such figures should be submitted within seven working days from the issue closure date.

• Be prompt in disbursing dividends, interests or any such accrual income received or collected by him on behalf of his clients.
• Not make any exaggerated statement whether oral or written to the client, either about its qualification or capability to render certain services or its achievements in regard to services rendered to other client.
• Always Endeavour to render the best possible advice to the clients having regard to the clients‘ needs and the environments and his own professional skill.
• Not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients
• Avoid conflict of interest and make adequate disclosure of his interest.
• Put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arise, should take reasonable steps to resolve the same in an equitable manner.

(a) Not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of its interest including long or short position in the security has been made, while rendering such advice.

(b) in case an employee of the banker to an issue is rendering such advice, the banker to an issue should ensure that he discloses his interest, the interest of his dependent family members and that of the.

14. Make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as banker to an issue which would impair its ability to render fair, objective and unbiased services.
15. Not indulge in any unfair competition, which is likely to harm the interests of other bankers to an issue or investors or is likely to place such other bankers to an issue in a disadvantageous position while competing for or executing any assignment.
16. Not discriminate amongst its clients, save and except on ethical and commercial considerations.
17. Ensure that any change in registration status/any penal action taken by the SEBI or any material change in financials which may adversely affect the interests of clients/ investors is promptly informed to the clients and business remaining outstanding is transferred to another registered person in accordance with any instructions of the affected clients/investors.
18. Maintain an appropriate level of knowledge and competency and abide by the provisions of the SEBI Act, regulations, circulars and guidelines of the SEBI. The banker to an issue should also comply with the award of the Ombudsman passed under the SEBI (Ombudsman) Regulations, 2003. 19. Ensure that the SEBI is promptly informed about any action, legal proceedings, etc., initiated against it in respect of any material breach of non-compliance by it, of any law, rules, regulations, and directions of the SEBI or of any other regulatory body.
19. Maintain an appropriate level of knowledge and competency and abide by the provisions of the SEBI Act, regulations, circulars and guidelines of the SEBI. The banker to an issue should also comply with the award of the Ombudsman passed under the SEBI (Ombudsman) Regulations, 2003. 19. Ensure that the SEBI is promptly informed about any action, legal proceedings, etc., initiated against it in respect of any material breach of non-compliance by it, of any law, rules, regulations, and directions of the SEBI or of any other regulatory body.
20. Not make any untrue statement of suppress any material fact in any documents, reports, papers or information furnished to the SEBI.
21. Not neglect or fail or refuse to submit to the SEBI or other agencies with which it is registered, such books, documents, correspondence, and papers or any part thereof as may be demanded/requested from time to time.
22. Abide by the provisions of such acts and rules, regulations, guidelines, resolutions, notifications, directions, circulars and instructions as may be issued from time to time by the Central Government, relevant to the activities carried on the banker to an issue.

Brokers to an Issue

Brokers are the persons mainly concerned with the procurement of subscription to the issue from the prospective investors. The appointment of brokers is not compulsory and the companies are free to appoint any number of brokers. The managers to the issue and the official brokers organize the preliminary distribution of securities and procure direct subscriptions from as large or as wide a circle of investors as possible. The stock exchange bye-laws prohibits the members from the acting as managers or brokers to the issue and making preliminary arrangement in connection with any flotation or new issue, unless the stock exchange of which they are members gives its approval and the company conforms to the prescribed listing requirements and undertakes to have its securities listed on a recognized stock exchange. The permission granted by the stock exchange is also subject o other stipulations which are set out in the letter of consent. Their active assistance is indispensable for broad basing the issue and attracting investors. By and large, the leading merchant bankers in India who act as managers to the issue have particulars of the performance of brokers in the country. The company in consultation with the stock exchange writes to all active brokers of all exchanges and obtains their consent to act as brokers to the issue. Thereby, the entry of experienced and unknown agencies in to the field of new issue activity as issue managers, underwriters, brokers, and So on, is discouraged. A copy of the consent letter should be filed along with the prospectus to the ROC. The names and addresses of the brokers to the issue are required to be disclosed in the prospectus. Brokerage may be paid within the limits and according to other conditions prescribed. The brokerage rate applicable to all types of public issue of industrial securities is fixed at 1.5 percent, whether the issue is underwritten or not. The mailing cost and other out-of pocket expenses for canvassing of public issues have to be borne by the stock brokers and no payment on that account is made by the companies. A clause to this effect must be included in the agreement to be entered into between the broker and the company. The listed companies are allowed to pay a brokerage on private placement of capital at a maximum rate of 0.5 percent.

Brokerage is not allowed in respect of promo directors, their friends and employees, and in respect of the rights issues taken by or renounced

by the existing shareholders. Brokerage is not payable when the applications are made by the institutions/bankers against their underwriting commitments or on the amounts devolving on them as underwriter’s consequent to the under subscription of the issues. The issuing company is expected to pay brokerage within two months from the date of allotment and furnish to the broker, on request, the particulars of allotments made against applications bearing their stamp, without any charge. The Cheque relating to brokerage on new issues and underwriting commission, if any, should be made payable at par at all centre where the recognized stock exchanges are situated. The rate of brokerage payable must be is enclosed in the prospectus.

(i) Banking All types of foreign exchange transactions including advice on exchange, imports, exports finance, financing the movement of goods through acceptance credits, the handling of commercial letters of credit, the negotiation and collection of foreign bills, accepting call or term deposits, short medium term finance, bridging finance, leading; corporate banking, treasury/trading services, discount/guarantee facilities. Issuing and underwriting. Public issues; underwriting of issues, preparation of prospectuses; new equity; obtaining stock exchange listings/broking services.

(ii) Corporate Finance New issues; development capital; negotiation of mergers and takeovers; capital reconstruction; bridging finance, medium term loans; public sector finance.

(iii) Management Services Economic planning; trusts administration; share secretarial services; primary capital market participation.

(iv) Product Knowledge Foreign exchange, import finance; export finance; commercial LCs; FBCSs; Call/ Term deposits; medium term loans (MTL); Bridging finance; leasing, treasury services, discount/guarantees, Acceptance credits, public issues, underwriting, equity, broking, estate planning, trusts, share transfers. Marketing the public issue arises because of the highly competitive nature of the capital market. Moreover, there is a plethora of companies, which knock at the doors of investors seeking to sell their securities. Above all the media bombards the modern investors with eye catching advertisement to sell their concepts to prospective investors.

Merchant Banking and Marketing of New Issues Following are the steps involved in the marketing of the issue of securities to be undertaken by the lead manager:

1. Target market: The first step towards the successful marketing of securities is the identification of a target market segment where the securities can be offered for sale. This ensures smooth marketing of the issue. Further, it is possible to identify whether the market comprises of retail investors, wholesale investors or institutional investors.
2. Target concentration: After having chosen the target market for selling the securities, steps are to be taken to assess the maximum number of subscriptions that can be expected from the market. It would work to the advantage of the company if it concentrates on the regions where it is popular among prospective investors.
3. Pricing: After assessing market expectations, the kind and level of price to be charged for the security must be decided. Pricing of the issue also influences the design of capital structure. The offer has to be made more attractive by including some unique features such as safety net, multiple options for conversion, attaching warrants, etc.
4. Mobilizing intermediaries: For successful marketing of public issues, it is important that efforts are made to enter into contracts with financial intermediaries such as an underwriter, broker/sub-broker, fund arranger, etc.
5. Information contents: Every effort should be mad3e to ensure that the offer document for issue is educative and contains maximum relevant information. Institutional investors and high net worth investors should also be provided with detailed research on the project, specifying its uniqueness and its advantage over other existing or upcoming projects in a similar field.
6. Launching advertisement campaign: In order to push the public issue, the lead manager should undertake a high voltage advertisement campaign. The advertising agency must be carefully selected for this purpose. The task of advertising the issue shall be entrusted to those agencies that specialize in launching capital offerings. The theme of the advertisement should be finalized keeping in view SEBI guidelines. An ideal mix of different advertisement vehicles such as the press, the radio and the television, the hoarding, etc. should be used. Press meets, brokers and investor’s conference, etc. shall be arranged by the lead manager at targeted in carrying out opinion polls. These services would useful in collecting data on investors’ opinion and reactions relating to the public issue of the company, such a task would help develop an appropriate marketing strategy. This is because; there are vast numbers of potential investors in semi-urban and rural areas. This calls for sustained efforts on the part of the company to educate them about the various avenues available for investment.
7. Brokers and investors conferences: As part of the issue campaign, the lead manager should arrange for brokers ‘and investors‘ conference centre which have sufficient investor population. In order to make such endeavors more successful, advance planning is required. It is important that conference materials such as banners, brochures, application forms, posters, etc. reach the conference venue in time. In addition, invitation to all the important people, underwriters, bankers at the respective places, investors ‘associations should also be sent.
8. A critical factor that could make or break the proposed pu8blic issue is its timing. The market conditions should be favorable. Otherwise, even issues from a company with an excellent track record, and whose shares are highly priced, might flop. Similarly, the number and frequency of issues should also be kept to a minimum to ensure success of the public issue.

Methods Following are the various methods being adopted by corporate entities for marketing the securities in the new Issues Market:

1. Pure Prospectus Method

2. Offer for Sale Method

3. Private Placement Method

4. Initial Public Offers Method

5. Rights Issue Method

6. Bonus Issue Method

7. Book-building Method

8. Stock Option Method

9. Bought-out Deals Method