SECURITIES AND EXCHANGE BOARD OF INDIAPRIMARY MARKET DEPARTMENTMittal Court, A Wing, Gr. Floor,224, Nariman Point, Mumbai 400 021 

RMB CIRCULAR NO. 1(98-99) June 05, 1998

To All the registered merchant bankers

Securities and Exchange Board of India (Merchant Banker) Regulation, 1992 were amended vide Notification No. S.O. 837 (E) Dated December 09, 1997 prohibiting registered merchant bankers from undertaking any activities other than those in securities market. The said regulation were further amended by SEBI (Merchant Bankers) Amendment Regulations, 1998 vide Notification No.S.O.74(E) dated January 21, 1998, which gave time upto June 30th, 1998 to the existing registered merchant bankers for segregating the activities not in the area of the securities market (copies of both the notifications are enclosed).

Subsequent to the notifications, SEBI has been receiving many queries from the registered merchant bankers regarding various aspects of the notifications. SEBI has therefore, for the benefit of the merchant banking community compiled all such queries and prepared a comprehensive clarification on the subject which is being issued as a Circular to all the registered merchant bankers.

S/d

M . Natarajan
Division Chief

Part A

Activities that Merchant Bankers can undertake : With effect from July 01, 1998, a merchant banker shall undertake only those activities which are relating to Securities market and which do not require registration/ granted exemption from registration as an NBFC from RBI.

In particular, a merchant banker may undertake the following activities :

  • Managing of Public Issue of Securities.
  • Underwriting connected with the aforesaid Public Issue Management Business
  • Managing/advising on International Offerings of Debt/Equity i.e. GDR, ADR, bonds and other instruments
  • Private Placement Securities
  • Primary or Satellite dealership of Government Securities
  • Corporate Advisory Services related to Securities Market e.g. take-overs, acquisitions, Disinvestment.
  • Stock-broking
  • Advisory services for Projects
  • Syndication of rupee term loans
  • International Financial Advisory Services

Registered Category I merchant bankers who were permitted under the SEBI (Merchant Bankers) Regulations 1992 to carry on underwriting and portfolio management activities may continue to carry on these activities till the expiry of their existing certificate of registration.

Similarly Category II, III & IV merchant bankers may continue to carry on the activities which the certificate of registration authourised them to, till the validity of the existing registration. 

Part B

Source of Funds: As regards the raising of funds by merchant bankers you may refer to the recent Circular of RBI, where under it has been clarified that Secured Debentures/ Bonds/ ICDS are exempted from the definition of term ‘Public Deposits’. In view of this, a merchant banker may raise money by issue of Secured Debentures/Secured Bonds/ICDS as a source of fund.

Part C

Procedure for transfer of Registration: In view of the Amendments, a registered merchant banker carrying on any business other that in the securities market will either have to discontinue such activities or transfer the merchant banking activities to a new entity. For exercising the later option the new entity shall be required to be registered with SEBI as a merchant banker.

On receipt of application from the existing registered merchant banker for transfer of certificate (or otherwise for grant of registration) to the entity to which the merchant banking activities have been hived off, SEBI will consider the application for transfer, provided such applications is in Form A and accompanied by

  • A confirmation that the key persons of transferor company have been transferred to the new entity (the acceptance of transfer by employee shall be submitted to SEBI)
  • Networth certificate (as on date of making application) and /or audited accounts (in case of transfer to existing subsidiary)
  • Details of Enquiry, if any, initiated against the transferor company ( registered merchant banker)
  • An undertaking that the transferee company is not carrying on any activity other than that in the securities market.
  • A personal guarantee/ declaration from 2 principal directors of the transferee company that it will be responsible for all the acts of omission and commission by the transferor company and will be subject to any action initiated by SEBI for such acts.

 Those merchant bankers who were not carrying on non-securities market activities or those who are planning to discontinue the same, should submit an undertaking to SEBI that they will not carry on any other activity than that in securities market.

Part D

Payment of fees: The credit will be given for fees paid by the earlier merchant banking entity (transferor) to the entity to which the registration is being transferred (transferee).