Merchant banking originated in the 13th century when traders financed wars and trades. Modern merchant banks advise companies on capital structure, pricing, and managing public offerings. They appoint necessary parties, hold press conferences, and ensure proper subscription and allotment. Companies should carefully select merchant banks based on integrity, reputation, infrastructure, and past performance. Regulations require merchant banks to act with high ethics, provide unbiased service, and protect client confidentiality. The document outlines the roles and responsibilities of merchant banks in India according to SEBI regulations.

1. Merchant Banking
Financial Markets and Services – Sathya Dayalan

2. Origin of Merchant Banking
 13th
Century merchant bankers were traders of
commodities and acted as bankers to the kings
of European states.
They Financed the continental wars and
coastal trades.
They lent their names to lesser known traders
by accepting bills through which they
guaranteed that the holder of the bill would
receive full payment.

3. Managers to the issue or Merchant
Bankers
 Advise on the capital structure, instrument of
issue.
 Pricing
 Assessing and appraisal of project report.
 Appointment of bankers, underwriters,
brokers, registrars, printers and advertisement
agents.
 Holding brokers-Underwriters,

4.  Press
and investor conferences.
 Deciding the pattern of advertisement.
 Deciding the collection branches where
application can be received or collected.
 Deciding on the dates of opening and
closing of the subscription list.
 Obtain daily report of the applications and
amounts collected at branches.

5.  Obtaining
subscription to the issue.
 Obtain consent of the Stock Exchange and
get basis of allotment approved.
Looking at the above roles of the MB a
company should choose one after a lot of
research into his integrity, expertise,
competence.

6. Factors to select a MB
 Ethics
and integrity.
 Reputation.
 Trained & committed manpower.
 Concern & interest of clients.
 Liaison and networking.
 Relationship & Contacts.
 Infrastructure.
 Past performance.

7. Factors to select a client.
 Track
record of the company.
 Track record of the promoters.
 Professional management.
 Financial strength of the promoters and the
company.
 Economic viability of the project.

8. Prime Objectives of MB
 Providing
long term funds to the projects or
companies.
 Project counseling- loan syndication, project
appraisal and arrangement of Working
capital.
 Deciding the capital structure.
 Portfolio Management
 Underwriting
 Corporate advisory & issue mgmt.

9. Emerging Areas.
 Private
placements with NRI’s and FII’s.
 Brought out deals.
 Market Making
 OTC
 NSE
 Forex
 Financial engineering- M&A’s, capital
restructuring.

10. SEBI (MB) Regulations, 1992
 Code
of Conduct for MB
Observe high standards of integrity and
fairness in all his dealings.
Render high standard of service, exercise
due diligence, proper care, exercise
independent judgment & disclose conflict
of interest while providing unbiased
service.

11. Code of conduct continued……..
Not
make any statement or become privy
to any act, practice or unfair competition,
likely to harm the interest of other MB or
is likely to place such other MB in a
disadvantageous position in relation to the
MB, while competing for or executing any
assignment. (Harmful statement while
solicitation & execution)

12.  Not
make exaggerated statements, written or
oral, to the client either about the qualification
or the capability to render certain services or
his achievements in regard to services rendered
to other clients.
 Render
best possible advice to the client
having regard to the clients needs and the
environment and his own professional skill;
 Ensure
that all professional dealings are
effected in a prompt, efficient and cost
effective manner.

13. A
MB shall not divulge to other clients, press or
any other party any confidential information
about his client, which has come to his
knowledge.
 Deal
in securities of the client company without
making disclosure to the board as required under
the regulation and also to the Board of Directors
of the client company.
 Provide
investors with true and adequate
information without making any misguiding or

14. exaggerated claims and are aware of
attendant risks before any investment
decisions are made.
 Ensure copies of prospectus,
memorandum and related literature are
made available to investors.
Fair allotment of securities and refund of
application money without delay.
Investor complaints are adequately dealt
with.


15. 
The MB shall not generally and particularly in respect of issue of any securities be
party to
 Creation
 Price
of false market
rigging or manipulation
 Passing
of price sensitive information or take
any other action which is unethical or unfair
to the investors.
A MB shall abide by the provisions of the
Act, rules and regulations which may be
applicable and relevant to the activities
carried on by the merchant banker.

16. Non-Compliance and Defaults.
 Type
1
 Type 2
 Type 3
 Type 4
General Defaults.
Minor Defaults.
Major Defaults.
Serious Defaults.

17. SEBI (MB) Regulations 1992
 Chapter
I –Preliminary
 Chapter II – Registration of MB
 Chapter III – General Obligations and
Responsibilities.
 Chapter IV – Procedure for Inspection.
 Chapter V – Procedure for Action in case of
Default.

18. Schedule – 1 Forms
 Form
A – Application for Grant
of Certificate/Renewal of
Certificate.
 Form B – Certificate of
Registration.
 Form C – Due diligence
certificate.

19. Schedule
2 – Fees
Schedule 3 – Code for Merchant Bankers.

20. Qualities of a good MB

Leadership

Aggressive action

Co-operative and friendliness

Contacts

Attitude towards problem solving

Inquisitiveness for new skills, information and
knowledge