INVESTMENT BANKING

Concept
Financial Intermediaries in the business of providing

investment and financial advisory services to companies,

governments and institutional investors
Functions
Help in issuing securities in the Primary Market
Provide guarantee by standby underwriting
Advise on M&As
Financial advice to investors

IB Services
Fund raising
Advisory
Export and Credit Finance
M&A
Private Equity
Infrastructure
Promoter and acquisition financing
Strategic advisory
Debt syndication and structured finance
Financial restructuring & Turnaround Financing
Private client services (PMS)
Sales and Trading
Trading and market-making
Equity Research and Broking

Trading Activities
Front Office
Pitching to various clients
Setting the terms & conditions for any kind of deal
Trading of securities on behalf of clients
Market-making
Sales desks communicate client orders to trading desks, who can

price and execute trades or structure new products

Middle Office
Traders, analysts & managers
Analyse the market, credit and liquidity risk that traders
take onto their balance sheet
Setting limits on their capital

Trading Activities
Back Office
Checking the trades executed and ensuring error-free
trades
Technology Inhouse software development and
integration with the processes

Merchant Banking
As per SEBI Any person who is engaged in the business of issue

management either by making arrangements regarding selling,

buying or subscribing to securities as manager, consultant,
advisor or rendering corporate advisory service in relation to such
issue management.
Functions
To bridge the gap between demand and supply of funds due to
the rapid growth of industry and trade
Provide counseling services in complying with statutory

obligations
Advisory services to investors regarding tax incentives, reliefs,

statutory relaxations, good return on investment and capital

appreciation

Categorization of Merchant Bankers

(a) Category I:
(i) to act as lead manager and carry on
any activity of the issue management,
including
preparation of prospectus and
other information relating
to the issue
determining financial structure,
tie-up of financiers and final allotment
and refund
of the subscription; and
(ii) to act as adviser, consultant,
manager, underwriter, portfolio manager.
(NW: Rs. 5 crore)
(b) Category II:
to act as adviser, consultant, comanager, underwriter, portfolio
manager (NW: Rs.
50 L)
(c) Category III:
to act as underwriter, adviser, and
consultant to an issue (NW: Rs. 20 L)
(d) Category IV:
to act only as adviser or consultant to
an
issue

Important SEBI guidelines

Every merchant banker should maintain copies of balance sheet, Profit and

loss account, statement of financial position

Half-yearly unaudited result should be submitted to 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 books of accounts,
records etc. of merchant bankers
Inspections will be conducted by SEBI to ensure that provisions of the
regulations are properly complied.
An initial authorization fee, annual fee and renewal fee may be collected by
SEBI.
A lead manager holding a certificate under category I shall accept a minimum
underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less

Pre-Issue Obligations of Merchant Bankers

Exercising due diligence to the effect that all the aspects of offering, veracity and

adequacy of disclosure in the offer documents have been done in a satisfactory manner.
Payment of the requisite fee along with draft offer document filed with SEBI.
Submission of the following documents with the offer document to SEBI
Memorandum of Understanding entered into between the lead merchant banker and

the issuer company

Equitable distribution of rights, obligation and responsibilities among the merchant
bankers involved in the public issue
Ensure that the underwriters pay the agreed amount incase of devolvement
Submission of due diligence certificate to SEBI along with draft prospectus together
with the following documents

A certificate stating that the issuer company has complied with conditions as stipulated in

the SEBI Regulations.

A certificate stating that all amendments, suggestion or observations made by SEBI have
been incorporated in the offer document;
A fresh "due diligence" certificate at the time of filing the Prospectus with the Registrar of
Companies.
A fresh certificate immediately before the opening of the issue that no corrective action
on its part is needed.
A fresh certificate after the issue has opened but before closes for subscription.

Pre-Issue Obligations of Merchant Bankers..

In the case of a listed company the following Certificates duly signed by the

Company Secretary or a Chartered Accountant have to be submitted to SEBI

along with the draft offer documents
All refund orders of the previous issues were dispatched within the prescribed time

and in the prescribed manner;

All security certificates were dispatched to the allottees with in the prescribed time and

in the prescribed manner;

The securities were listed on the Stock Exchanges as specified in the offer

documents.
Undertaking to SEBI by the issuer regarding the promoters or promoter

groups interest
Submission of list of promoters or promoter group by the issuer to SEBI

Pre-Issue Obligations of Merchant Bankers..

Appointment of Intermediaries
Lead Merchant Bankers
Bankers to the Issue
Registrars to the Issue
Underwriters
Advertisers
Printers
Legal Counsel
Expert panel
Other intermediaries

Pre-Issue Obligations of Merchant Bankers..

Publication of offer documents
Pre-issue advertisements
IPO grading
Despatch of issue materials
No complaints certificate
Mandatory collection centres
Authorized collection agents
Advertisement for rights post issues
Appointment of compliance officer
Abridged prospectus
Agreements with depositories
Branding of securities

Post Issue Formalities

Post-issue monitoring reports
3 day monitoring report in case of issue through book building

route
3 day monitoring report in other cases
Final post issue monitoring report

Redressal of investors grievances

Co-ordination with intermediaries
Monitoring of underwriting obligations
Bankers to the issue ensuring that the application money

received are kept in a separate bank account

Post-issue advertisements
Basis of allotment
Reservation for retail individual investors

Post Issue Formalities..

Other responsibilities
Dispatch of share certificates/ refund orders
Completion of demat credit
Completion of listing formalities
Payment of interest in the case of delayed dispatch of

allotment letters/ refund orders

Release of post-issue advertisement
Getting trading permission from the respective stock

exchanges

Eligibility Criteria to go for Public Issues

http://iepf.gov.in/IEPF/Eligibility_norms.html
SEBI has stipulated the eligibility norms for companies planning an IPO which are as follows:
Entry Norm I (Profitability Route)
a) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years of which
not more than 50% are held in monetary assets. However, the limit of 50% on monetary
assets shall not be applicable in case the public offer is made entirely through offer for sale.
b) Minimum of Rs. 15 crore as average pre-tax operating profit in at least three years of the
immediately preceding five years.
c) Net worth of at least Rs. 1 crore in each of the preceding three full years.
d) If there has been a change in the companys name, at least 50% of the revenue for
preceding one year should be from the new activity denoted by the new name
e) The issue size should not exceed 5 times the pre-issue net worth

Eligibility Criteria to go for Public Issues..

Alternative routes
To provide sufficient flexibility and also to ensure that genuine
companies are not limited from fund raising on account of strict
parameters, SEBI has provided the alternative route to the companies
not satisfying any of the above conditions, for accessing the primary
market, as under:
Entry Norm II (QIB Route)
Issue shall be through book building route, with at least 75% of net
offer to the public to be mandatory allotted to the Qualified Institutional
Buyers (QIBs). The company shall refund the subscription money if
the minimum subscription of QIBs is not attained.

Eligibility Criteria to go for Public Issues..

SEBI has stipulated the eligibility norms for companies planning an IPO
which are as follows:
(a) If the company has changed its name within the last one year, at least
50% revenue for the preceding 1 year should be from the activity
suggested by the new name.
(b) The aggregate of the proposed issue and all previous issues made in
the same financial year in terms of issue size does not exceed five times
its pre-issue net worth as per the audited balance sheet of the preceding
financial year.
Any listed company not fulfilling these conditions shall be eligible to
make a public issue (i.e. FPO) by complying with QIB Route as specified
for IPOs i.e. issue shall be through book building route, with at least 75%
to be mandatory allotted to the Qualified Institutional Buyers (QIBs).
There is no entry norm for a listed company making a rights issue.