SEBI Guidelines for Registration of Merchant Banker

Application for Grant of Certificate

1. An application by a person for the issue of a certificate of registration shall be made to the Board in the prescribed Form A.
2. The application under sub-regulation (1) shall be made for registration of any one of the following four categories of the merchant banker namely: -

a. Category I, that is

i. to carry on any activity of the issue management, which will inter-alia include preparation of the prospectus and other information relating to the issue, ascertaining financial structure, tie-up of financiers and further finally allotting and refund of the subscription of the amount; and

ii. Further, to work as an adviser, consultant, manager, underwriter, portfolio manager.

b. Category II, that is, to work as an adviser, consultant, co-manager, underwriter, portfolio manager;

c. Category III, that is to perform the functions as underwriter, adviser, consultant to an issue;

d. Category IV, that is to perform only as an adviser or consultant to an issue.

Notwithstanding anything contained in this regulation, with effect from 9th December 1997,

i. An application under sub-regulation (2) can be submitted only for commencing on the activities mentioned in clause (a) therein, and

ii. An applicant can start the activity as underwriter only if he arranges for a separate certificate of registration under the provisions of Securities and Exchange Board of India (Underwriters) Regulations, 1993, and

iii. An applicant can carry on the activity as portfolio manager only if he obtains a separate certificate of registration under the provisions of Securities and Exchange Board of India (Portfolio Manager) Regulations, 1993.

3. Apart from the provisions of sub-regulation (1), any application made by a merchant banker prior to coming into force of these rules and regulations including such particulars or similar thereto as mentioned in Form A shall be deemed as an application submitted in pursuance of sub-regulation (1) and treated with accordingly.

4. Application to conform to the requirements of SEBI (Board):

Subject to the provisions of sub-regulation (3) of regulation 3, the application, should be complete in all respects and conform to the instructions specified in the form, if not then it shall be rejected. Provided that, before rejecting such an application, the applicant shall be given a chance to remove within the specified time such objections as pointed out by the Board.

Furnishing of information, clarification and personal representation

5.. (i) The Board may also advise the applicant to submit further information or clarification regarding matters relevant to the activity of a merchant banker in order to clear the application.

(ii) If required by the Board, the applicant or its principal officer shall appear before the Board for personal representation in connection with the application.

Who can be an applicant?

• The applicant shall be a body corporate but not a non-banking financial company (NBFC) as defined by the Reserve Bank of India(RBI) Act, 1934,

[Provided that the merchant banker who has been issued a certification of registration by the RBI to act as a Primary or Satellite dealer may carry on such activity. However, such company shall not accept or hold public deposit as it is a condition of the RBI.]

• the applicant company has the necessary infrastructure facilities like adequate office space, equipment, and manpower to effectively discharge his activities as merchant bankers;
• the applicant has in his employment a minimum of two persons having the experience to conduct the business of the merchant banker;
• a person directly or indirectly connected with the applicant has not been issued registration by the Board;

Explanation: For the purposes of this clause the expression "directly or indirectly connected" means any person being an associate, subsidiary, inter-connected or group Company of the applicant in case of the applicant is a body corporate.

• The applicant shall fulfill the capital adequacy requirement specified in regulation 7;
• The applicant, his partner, director or principal officer should not have involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant;
• The applicant, his director, partner or principal officer should not have been at any time been convicted for any offense involving moral turpitude or has been found guilty of any economic offense;
• The applicant must have the professional qualification from an institution recognized by the Government in finance, law or business management;
• the applicant must fulfill fit and proper criteria.
• To confirm that grant of a certificate to the applicant is in the interest of investors at large.

Capital Adequacy Requirement for Merchant Banking registration:

1. The capital adequacy requirement referred to in sub-regulation (d) of regulation 6 shall be at least equal to the net worth of the person making the application for grant of registration.
2. As per the provision of sub-regulation (1), the net worth shall be as follows,

Category Minimum Amount

Category I Rs. 5, 00, 00, 000]

Category II Rs. 50, 00, 000

Category III Rs. 20, 00, 000

Category IV Nil

Explanation: For the purposes of this regulation "net worth" means in the case of an applicant which is a partnership firm or a body corporate, the value of the capital contributed to the business of such firm or the paid-up capital of such body corporate plus free reserves as the case may be at the time of making application under sub-regulation (1) of regulation 3.

Procedure for Registration

Board on being satisfied that the applicant is eligible shall grant a certificate of registration in Form B

On the grant of a certificate, the applicant shall be liable to pay the registration fees in accordance with Schedule II and it will be recognized as a registered entity and may commence the business.

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