CMR
UNIT—IV SEBI CONTROL OVER INTERMEDIARIES
The capital market intermediaries are vital link between investor, issuer and regulations. Objective of
these intermediaries is to smoothen the process of investment and to establish a link between the
investors and the users of funds.
Corporations and governments do not market their securities directly to the investors, instead they
hire the services of the market intermediaries to represent them to the investors.
SEBI has defined the role of each of the intermediaries, the eligibility criteria for granting registration,
their functions and responsibilities and code of conduct to which they are bound.
MERCHANT BANKER
As per SEBI rules, a merchant banker refers to, “any person who is engaged in the business of issue
management either by making arrangement regarding buying, selling or subscribing to securities or
acting as manager, consultant or rendering corporate advisory services in relation to such issue
management”.
Merchant bankers provide advice to entrepreneurs right from the stage of conception of the project
till the commencement of production. Merchant bankers are in charge of the issue process. They act
as intermediaries between the company and the investors.
ACTIVITIES OF MERCHANT BANKERS
SEBI (MERCHANT BANKERS ) Regulations,1992 regulates the activities of merchant bankers in the
intermediaries capital market-
The primary activities performed by a merchant banker are listed below:
Public issue management activities;
Acting as a stock broker;
Financial advisory services at both domestic and international levels;
Managing industrial projects for government approvals;
Working as a mediator to raise funds;
Advisory services for business expansion and redevelopment;
Management of interests and dividends for clients;
Leasing services.
Regulation 03 lays down that an application by a person desiring to become a merchant banker shall
be made to SEBI in prescribed form (form A) seeking grant of a certificate of registration along non-
refundable application fee as specified in schedule II of these regulations.
Regulation 13 says that MB shall make all efforts to protect the interest of investors . MB shall
maintain high standards of integrity, dignity and fairness in the conduct of it’s business.
BANKER TO THE ISSUE
As per Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994, The term
‘Bankers to the issue’ means a scheduled bank that is charged with carrying out all or any of the
following activities.
a. Acceptance of application and application monies
b. Acceptance of allotment or call monies
c. Refund of application monies
d. Payment of refund and interest warrants
PROCEDURE FOR REGISTRATION
Regulations 7 and 8A deals with the grant of certificate of registration and conditions of registration.
Regulation 09 relates to the procedure where the registration is not granted, leading to rejection of
the application. Applicant has the right to appeal for reconsideration and SEBI shall reconsider the
application and communicate it’s decision to the applicant in writing.
Regulation 11 imposes duty on the applicant to pay the fee as prescribed. Non-payment of fee may
result in suspension of registration and the applicant shall cease to carry on the activity as a BTI
during the period of suspension.
GENERAL OBLIGATIONS AND RESPONSIBILITIES
When required, a banker to an issue has to furnish to the SEBI the following information: (1) the
number of issues for which he was engaged as a banker to an issue; (2) the dates on which
applications from investors were forwarded to the issuing company. (3) the amount of refund to the
investors.
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 susp/cancelled.
DEBENTURE TRUSTEES
Debentures Trustee is a person or institution which protects the interest of the debenture holders.
The Trustees become the custodian of the assets on which charge has been created.
ROLE AND FUNCTIONS
Call for periodical reports from the body corporate i,e issuer of debentures.
Enforce security in the interest of the debenture holders.
Take possession of trust property in accordance with the provisions of the trust deed.
Inform the SEBI immediately of any breach of trust deed or provision of any law.
Appoint a nominee Director on the board of the body corporate when required.
RESPONSIBILITIES AND OBLIGATIONS
A debenture trustee who has been granted a certificate cannot act in respect of each issue of
debenture unless he enters into a written agreement with the body corporate.
No debenture trustee has to act for any issue of debentures in case it is an associate of the body
corporate or it has lent the loan which is not yet fully repaid or is proposing to lend money to the
body corporate.
Every debenture trustee has to keep and maintain proper books of account, records and documents,
relating to the trusteeship functions for a period of not less than 5 financial years and has to intimate
the Board, the place where the books of account, records and documents are maintained.
DUTIES OF THE DEBENTURE TRUSTEES
Call for periodical reports from the body corporate.
Take possession of trust property in accordance with the provisions of the trust deed.
Enforce security in the interest of the debenture holders.
Carry out such acts as are necessary for the protection of the debenture holders and to do all things
necessary in order to resolve the grievances of the debenture holders.
Inform the Board immediately of any breach of trust deed or provision of any law.
STOCK BROKERS
Stock Broker is one who deals in stocks of monied corporations and other securities. Stock broker for
a commission, attends to the purchase and sale of stocks or shares, of the Government or other
securities, on behalf of and for the accounts of their clients. He is a person who has either made an
application for registration or is registered as a stock broker or sub broker, in accordance with the
rules and regulations made under the SEBI Act, 1992.
SEBI (BROKERS AND SUB-BROKERS) REGULATIONS,1992
Regulation 05: Consideration application
The Board shall take into account for considering the grant of a certificate all matters like whether
the stock broker:
(a) Is eligible to be admitted as a member of a stock exchange
(b) has the necessary infrastructure like adequate office space, equipment’s etc.
(c) has any past experience in the business of buying, selling or dealing in securities
(d) is subjected to disciplinary proceedings under the rules, regulations and bye-laws of a stock
exchange.
Regulation 06: Procedure for registration
The Board on being satisfied that the stock-broker is eligible, shall grant a certificate in Form D to the
stock-broker and send an intimation to that effect to the stock exchange.
Regulation 07: Stock-Brokers to abide by Code of Conduct
The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at
Schedule II.
Regulation 08: Procedure where registration is not granted
(1) Where an application for grant of a certificate does not fulfill the requirements mentioned in
regulation 5, the Board may reject the application after giving a reasonable opportunity of being
heard.
(2) The refusal to grant the registration certificate shall be communicated by the Board within thirty
days of such refusal to the concerned stock exchange and to the applicant stating therein the
grounds on which the application has been rejected.
(3) An applicant may, being aggrieved by the decision of the Board, apply within a period of thirty
days from the date of receipt of such intimation, to the Board for reconsideration of its decision.
(4) The Board shall reconsider an application and communicate its decision as soon as possible in
writing to the applicant and to the concerned stock-exchange.
SHARE TRANSFER AGENTS
Share Transfer Agent means any person who maintains the record of holders of securities and deals
with all matters connected with the transfer or redemption of securities or activities incidental
thereto.
They are responsible for recording and updating shareholders’ names, addresses, contact details,
dividend information, issuing and cancelling new share certificates, etc.
SEBI (registrar’s to an issue and share Transfer agents) regulations,1993
Regulation 6: Consideration of application
The Board shall take into account for considering the grant of a certificate all matters like, whether
the applicant─
(a) has the necessary infrastructure like adequate office space, equipment’s etc.
(b) has any past experience in the activities
(c) or any person directly or indirectly connected with him has not been granted registration by the
Board under the Act
(d) is subjected to any disciplinary proceedings under the Act.
Reg. 07 stipulates that the capital adequacy requirement (net worth) 25,00000
GENERAL OBLIGATIONS AND RESPONSIBILITIES
Regulations 13-15
Transfer of securities and record keeping for investors Inform investors of new fund offers
Endorsement of certificates/for allotment/call monies. Transmission, consolidation, sub-division of
securities. Dispatch of transferred securities and securities received for transmission /consolidation
/sub-division etc., directly to the investors. Cancel the name and certificate of the shareholder who
had sold the shares of securities, and replace it with the new shareholder.
UNDERWRITER’S
Underwriters are entities (typically investment banks or stock brokers) that are registered with the
SEBI and undertake the underwriting of an issue of securities of a company.
OBLIGATIONS AND RESPONSIBILITIES
Regulations 14&15 of the SEBI(underwriters) regulations,1993.—
Contains provisions regarding the matter on which every underwriter shall enter into an agreement
with the body corporate and his general responsibilities are like:
The underwriter shall not derive any direct or indirect benefit from underwriting the issue other than
the commission or brokerage payable under an agreement for underwriting.
The total underwriting obligations under all the agreements shall not exceed twenty times the net
worth referred to in regulation 7.
Every underwriter, in the event of being called upon to subscribe for securities of a body corporate
shall subscribe to such securities within 45 days of the receipt of such intimation from such body
corporate.
PORTFOLIO MANAGER
A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a client,
advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager
or otherwise), the management or administration of a portfolio of securities or the funds of the
client
DISCRETIONARY AND NON DISCRETIONARY PORTFOLIO MANAGER
The discretionary portfolio manager individually and independently manages the funds of each client
in accordance with the needs of the client.
The non-discretionary portfolio manager manages the funds in accordance with the directions of the
client.
Role and responsibilities of a Portfolio Manager.─
The Discretionary portfolio manager shall individually and independently Manage the funds of each
client in accordance with the needs of the client, whereas The non-discretionary portfolio manager
shall manage the funds in Accordance with the directions of the client.
The portfolio manager shall not accept from the client, funds or securities worth less than five lacs
rupees.
The portfolio manager shall not derive any direct or indirect benefit Out of the client’s funds or
securities.
The portfolio manager shall not borrow funds or securities on Behalf of the client.
The portfolio manager shall not lend securities held on behalf of Clients to a third person except as
provided under these regulations.
The portfolio manager shall ensure proper and timely handling of Complaints from his clients and
take appropriate action immediately.
CUSTODIAN OF SECURITIES
A custodian is the one who holds the securities, for safekeeping and clearing, on behalf of its
customers who are trading members in a market (brokers). The custodian, as registered by Sebi,
settles a trade on behalf of its client, a trading member. They take the burden from the individual
investor and help them to avoid the hassle while trading in the stock market. A custodian holds
security either in its electronic form or in its physical form.
ROLE AND RESPONSIBILITIES
SEBI(CUSTODIAN OF SECURITIES) Regulations,1996 prescribes the role and responsibilities Of the
custodians as;
Administrate and protect the assets of the clients
Open a separate Custody account and deposit account in the name of each client
Record assets and conduct registration of securities
Capital requirement
Regulation 7 of SEBI (custodian of securities) Regulations ,1996 deals with capital adequacy
requirement, which provides that; All custodians are required to fulfill the capital requirements by
having a net worth of Rs.50 crores.
“Net worth” means the paid up capital and the fee reserves as on the date of application.
