SECURITIES AND EXCHANGE BOARD OF INDIA
PRIMARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
RMB/CIRCULAR NO.4 (98-99)
March 30, 1999
To:
All Registered Merchant Bankers
The Reserve Bank of India has exempted merchant bankers registered with Securities and Exchange Board of India, under Section 12 of the Securities and Exchange Board of India Act, 1992, and carrying on the business of a merchant banker in accordance with the Securities and Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992, from the applicability of the provisions of Sections 45 (IA), 45 (IB) and 45 (IC) of the RBI Act, 1934, and the provisions of the notification no. DFC.118/DG(SPT)-98 dated January 31, 1998 and notification no. DFC.119/DG(SPT)-98 dated January 31, 1998, subject to the condition, inter-alia, that the merchant bankers acquire securities as a part of their merchant banking business only. Subsequently, several queries have been raised by such registered merchant bankers as to whether they can acquire securities for portfolio management, underwriting activities and treasury operations.
In view of the same, the following clarifications are issued:
a. A merchant banker can deploy its surplus funds to the extent of its networth in securities
b. Subject to the provisions of Regulation 3 (2A ) of SEBI Merchant Bankers (Amendment) Regulation, 1997, a merchant banker can carry on underwriting activities and can acquire securities as a part of underwriting commitment in case of devolvement and dispose it off subsequently. However, such a merchant banker shall not engage in the purchase and sale of same securities like an investment company
c. Subject to the provisions of Regulation 3 (2A ) of SEBI Merchant Bankers (Amendment) Regulation, 1997, a merchant banker can carry on Portfolio Management activities
d. A merchant banker shall not be allowed to borrows funds from the market and engage in the acquisition and sale of securities.
M . Natarajan
Division Chief