Institute Of Engineering And
Dept : MBA
: Regulations Of Merchant banking
“ A merchant bank is a financial institution providing
capital to companies in the form of share ownership
instead of loans. A merchant bank also provides
advisory on corporate matters to the firms which they
Regulations Of Merchant banking :
A merchant banker will require authorization by SEBI to
carry out the business.
SEBI has classified the merchant bankers into four
categories based on the nature and range of the
activities and responsibilities.
Category 1 :
It consists of merchant bankers who
carry on the business of issue management which
consists of preparation of issue management which
consists of preparations of prospectus, determining
the financial structure , tie-up of the financiers.
Minimum networth required is Rs. 1 crore.
Category : 2
It consists of those authorized to act in the capacity of
The Minimum networth required is Rs. 50 Lakhs
Category : 3
consists of those authorized to act as underwriter, advisor or consultant
to an issue.
The Minimum networth required is Rs. 20 Lakhs.
Category : 4
it consists of Merchant banker who act as
advisor or consultant to an issue.
There is no Minimum networth required.
SEBI GUIDELINES FOR MERCHANT
SEBI’s authorization is a must to act as merchant
Professional qualification in finance, law or business management
Infrastructure like office space, equipment and man power
Past track of record, experience, general reputation and fairness in all
Every merchant banker should maintain copies of balance sheet, Profit
and loss account, statement of financial position
Half-yearly audited result should be submitted to
Merchant bankers are prohibited from buying
securities based on the unpublished price sensitive
information of their clients
SEBI has been vested with the power to suspend or
cancel the authorization in case of violation of the
SEBI has the right to send inspecting authority to inspect
books of accounts, records etc… of merchant bankers
merchant banking is difficult to define. The function
of merchant bankers varies from country to country. Merchant
banks are known as “Accepting and issuing houses” in UK and as
“investment banks” in USA
In India merchant bankers are allowed to undertake
only those activities which are related to securities market
including issue management activities and are prohibited
from carrying on fund based activities other than those
related exclusively to the capital market. This reduces the
scope of merchant banking in India.
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