Merchant Bankers – Obligations and responsibilities

Code of conduct: Every merchant banker has to abide by the code of conduct as specified below.

A merchant banker in the conduct of his business has to observe high standards of integrity and fairness in all his dealings with his client and other merchant bankers.

He ought to render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment. He has to, wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing services.

He cannot make any statement or become privy to any act, practice unfair competition, which is likely to be harmful to the interest of other merchant bankers or is likely to place such other merchant bankers in a disadvantageous potion in relation to him, while competing for or executing any assignment.

He should not make any exaggerated statement, whether oral or written, to the client either about his qualification or his capability to render certain services or his achievements in regard to services rendered to other clients.

A merchant banker has always to endeavor to (1) render the best possible advice to the clients having regard to the clients’ needs and the requirements and his own professional skill; and (2) ensure that all professional dealings are affected in a prompt, efficient and cost effective manner.

He should not (1) divulge to other clients, press or any other party any confidential information about his client, which has come to his knowledge; and (2) deal in securities of any client company without making disclosure to the SEBI as required under the regulations and also the board of directors of the client company.

He should endeavor to ensure that (1) the investors are provided with true and adequate information without making any misguided or exaggerate claims and are made aware of attendant risks before any investment decision is taken by them (2) copies of prospectus, memorandum and related literature are made available to the investors; (3) adequate steps are taken for the fair allotment of securities and refund of application money without delay; and (4) complaints from investors are adequately dealt with.

The merchant bankers should not generally and particularly in respect of issue of any securities be a part to (1) creation of false market; (2) price rigging or manipulations (3) passing of price sensitive information to brokers, members of stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors.

Finally, he has to abide by the provisions of the SEBI Act, its rules and regulations which may be applicable and relevant to the activities carried on by the merchant bankers.

Maximum Number of Lead Managers: The maximum number of lead mangers is related to the size of the issue. For an issue of the size less than Rs 50 crore, two lead managers are appointed. For size groups of Rs 50 crore to Rs 100 crore and Rs 100 crore to Rs 200 crore, the maximum permissible lead managers are three and four respectively. A company can appoint five or more than five (as approved by the SEBI)lead managers in case of issue sizes between Rs 200 crore and Rs 400 crore and above Rs 400 crore respectively.

Responsibility of lead Managers: Every lead manager has to enter into an agreement with the issuing companies setting out their mutual rights, liabilities ad obligation relating to such issues and in particular to disclosures, allotment and refund. A statement specifying these is furnished to the SEBI at least one month before the opening of the issue for subscription. In case of more than one lead manager, the statement has to provide details about their respective responsibilities. A lead merchant banker cannot manage an issue if the issuing company is his associate. He can also not associate with a merchant banker who does not hold a certificate or registration with the SEBI.

It is necessary for a lead manager who is a Category I merchant banker, to accept a minimum underwriting obligation of 5 per cent of the total underwriting commitment or Rs 25 lakh, whichever is less. If he is unable to do so, he has to make arrangements for underwriting of an equal amount by a merchant banker associated with that issue under intimation to the SEBI.