Brokers to the Issue

Brokers are the persons mainly concerned with the procurement of subscription to the issue from the prospective investors. Appointment of brokers is not compulsory and the companies are free to appoint any number of brokers. The managers to the issue and the official brokers organize the preliminary distribution of securities and procure direct subscriptions from as large or as wide a circle of investors as possible. The stock exchange’s byelaws prohibit members from acting as managers or brokers to the issue and making preliminary arrangement in connection with any floatation or new issue, unless the stock exchange of which they are members gives its approval, and unless the company conforms to the prescribed listing requirements and undertakes to have its securities listed on a recognized stock exchange. The permission granted by the stock exchange is also subject to other stipulations which are set out in the letter of consent. Their active help and assistance are indispensable for broadcasting the issue and attracting investors. By and large, leading merchant bankers in India who act as managers to the issue have particulars regarding the performance of brokers in the country. The company in consultation with the stock exchanges writes to all active brokers of all exchanges and obtains their consent to act as brokers to the issue. Entry of in experienced and unknown agencies who may not be subject to any particular discipline in the field of new issue activity as issue managers, underwriters, brokers, etc is discouraged. A copy of the consent letter should be filed along with the prospectus to the Registrar of Companies. The names and addresses of the brokers to the issue are required to be disclosed in the prospectus.

Brokerage may be paid within the limits and according to other conditions prescribed. Brokerage rate applicable to all types of public issue of industrial securities is fixed at 1.5 percent, whether the issue is underwritten or not. The mailing cost and other out of pocket expenses for canvassing of public issues are borne by the stock brokers and no payment on that account is made by the companies. A clause to this effect must be included in the agreement to be entered into between the broker and the company. The listed companies are allowed to pay brokerage on private placement of capital at a maximum rate of 0.5 percent. Brokerage is not allowed in respect of promoters’ quota including the amounts taken up by the directors, their friends and employees and in respect of the rights issues taken up by or renounced by the existing shareholders. Brokerage is also not payable when the applications are made by the institutions/bankers against their underwriting commitments or on the amounts devolving on them as underwriters consequent to the under subscription of the issues.

The company is expected to pay brokerage within two months from the date of allotment and furnish to the broker, on request, particulars of allotment made against applications bearing their stamp, without any charge. The checks relating to brokerage on new issues and underwriting commission, if any, should be made payable at par at all centers where recognized stock exchanges are situated. The arte of brokerage payable must be disclosed in the prospectus.


The registrars to an issue, as an intermediary in the primary market, carry on activities such as collecting application from investors, keeping a proper record of applications and money received from investors/ paid to the seller of securities and assisting companies in determining the basis of allotment of securities in consultation with stock exchanges, finalizing allotment of securities and processing/ dispatching allotment letters, refund orders, certificates and other related documents in respect of issue of capital. Share transfer agents maintain records of holders of securities of or on behalf of companies and deal with all matters connected with the transfer / redemption of its securities. To carry on their activities, they must be registered with the SEBI which can also renew the certificate of regulations. They are divided into two categories: (1) category I: to carry on the activities as a registrar to an issue and share transfer agent (2) category II: to carry on the activity either as a registrar or as a share transfer agent. The registration is granted by the SEBI on the basis of consideration of all relevant matters and, in particular the necessary infrastructure past experience and capital adequacy. It also takes into account the fact that any connected person has not been granted registration and any director / partner / principal officer has not been convicted for any offence involving moral turpitude or has been found guilty of any economic offence. —