Financial Intermediaries

Rajat Dixit
 Financial Intermediaries
● The term financial intermediary includes all kinds of organisations which intermediate
and facilitate financial transactions of both individuals and corporate customers.
● Thus, it refers to all kinds of financial institutions and investing institutions which
facilitate financial transactions in financial markets.
● Financial intermediaries serve as middlemen for financial transactions, generally
between banks or funds.
● These intermediaries help create efficient markets and lower the cost of doing
business.
● Intermediaries can provide leasing or factoring services, but do not accept deposits
from the public.
● Financial intermediaries offer the benefit of pooling risk, reducing cost, and providing
economies of scale, among others.
Financial Intermediaries
 Benefits of Financial Intermediaries
● Through a financial intermediary, savers can pool their funds, enabling them to make
large investments, which in turn benefits the entity in which they are investing.
● At the same time, financial intermediaries pool risk by spreading funds across a diverse
range of investments and loans.
● Loans benefit households and countries by enabling them to spend more money than
they have at the current time.
● Financial intermediaries also provide the benefit of reducing costs on several fronts.
● For instance, they have access to economies of scale to expertly evaluate the credit
profile of potential borrowers and keep records and profiles cost-effectively.
● they reduce the costs of the many financial transactions an individual investor would
otherwise have to make if the financial intermediary did not exist.
Financial Intermediaries regulated by SEBI
● Underwriters
● Debenture Trustees
● Banker to an issue
● Credit Rating Agency
● Merchant Bankers
● Share Transfer Agents
 Underwriters

● Sec. 2 (f) SEBI (underwriters) Regulations, 1993 “underwriter” means a person who
engages in the business of underwriting of an issue of securities of a body corporate.
● Sec. 2 (fa) SEBI (underwriters) Regulations, 1993(fa) “underwriting” means an
agreement with or without conditions to subscribe to the securities of a body corporate
when the existing shareholders of such body corporate or the public do not subscribe to
the securities offered to them.
● Underwriting is an agreement whereby the underwriter promises to subscribe to a
specified number of shares or debentures or a specified amount of stock in the event of
public not subscribing to the issue. If the issue is fully subscribed then there is no
liability for the underwriter. If a part of share issues remain unsold, the underwriter will
buy the shares. Thus underwriting is a guarantee for the marketability of shares.
● The term underwriter originated from the practice of having each risk-taker write their
name under the total amount of risk they were willing to accept for a specified premium.
 Method of Underwriting
● Standing behind the issue: Under this method, the underwriter guarantees the sale of
a specified number of shares within a specified period. If the public do not subscribe to
the specified amount of issue, the underwriter buys the balance in the issue.
● Outright purchase: The Underwriter, in this method, makes outright purchase of
shares and re-sale them to the investors.
● Consortium method: Underwriting is jointly done by a group of underwriters in this
method. The underwriters form a syndicate for this purpose. This method is adopted for
large issue.
 Advantages of Underwriters
● The issuing company is relieved from the risk of finding buyers for the issue offered to
the public. The company is assured of raising adequate capital.
● The company is assured of getting minimum subscription within the stipulated time, a
statutory obligation to be fulfilled by the issuing company.
● Underwriters undertake the burden of highly specialized function of distributing
securities.
● Provide expert advice with regard to timing of security issue, the pricing of issue, the
size and type of securities to be issued etc.
● Public confidence on the issue enhances when underwritten by reputed underwriters.
 Types of Underwriters
● Institutional Underwriters
○ Life Insurance Corporation of India (LIC)
○ Unit Trust of India (UTI)
○ Industrial Development Bank of India (IDBI)
○ Industrial Credit and Investment Corporation of India (ICICI)
○ Commercial banks and general insurance companies.
● Non-Institutional underwriters
○ Brokers
■ They guarantee shares only with a view to earn commission from the
company floating the issue.
■ They are known to-off load the shares later to make a profit.
 Registration of Underwriters
● Govern by SEBI (Underwriters) Regulation, 1993
● Regulation 3: Registration
○ No person shall act as underwriter unless he holds a certificate granted by the
Board under these regulations.
○ SEBI registered Stock broker/ Merchant Banker would not require separate
certificate.
● Regulation 6: Consideration of Application: Whether the applicant has-
○ the necessary infrastructure, like adequate office space, equipments and
manpower to effectively discharge his activities;
○ any past experience in the underwriting or has in his employment minimum two
persons who had the experience in underwriting;
○ or any person, directly or indirectly connected with the applicant has not been
granted registration by the Board under the Act.
■ whether a previous application for a certificate of any person directly or
indirectly connected with the applicant has been rejected by the Board; or
■ Any disciplinary action has been taken against such person.
○ fulfils the capital adequacy requirements specified in regulation 7 (capital
adequacy requirement shall not be less than the net worth of rupees twenty
lakhs);
○ or any of its director, partner or principal officer is or has at any time been
convicted for any offence involving moral turpitude or has been found guilty of
any economic offence;
 Fit & Proper Person
● Schedule IV, Clause 14: Amendment to SEBI (Underwriters) Regulation, 1993
● Schedule II of SEBI (Intermediaries) Regulation, 2008
○ the Board may take account of any consideration as it deems fit, including but not
limited to the following criteria in relation to the applicant or the intermediary, the
principal officer and the key management persons by whatever name called–
■ integrity, reputation and character;
■ absence of convictions and restraint orders;
■ competence including financial solvency and net-worth.
 Fee
● Schedule II, Regulation 12:
○ Application Fee is 25,000₹
○ Every underwriter shall pay fee of thirteen lakh thirty-three thousand and three
hundred rupees at the time of grant of certificate of initial registration.
○ An underwriter who has been granted a certificate of permanent registration, to
keep its registration in force, shall pay fee of five lakh rupees every three years
from the sixth year from the date of grant of certificate of initial registration, or
from completion of the period of renewed certificate of registration, as the case
may be.
○ Fee shall be payable by the Underwriter by a demand draft in favour of
‘Securities and Exchange Board of India’ payable at Mumbai or at the respective
regional office.
 Code of Conduct
Schedule III, Regulation 13.

1. An underwriter shall make all efforts to protect the interests of its clients.
2. An underwriter shall maintain high standards of integrity, dignity and fairness in the
conduct of its business.
3. An underwriter shall ensure that it and its personnel will act in an ethical manner in all
its dealings with a body corporate making an issue of securities (hereinafter referred to
in the Schedule as “the issuer”).
4. An underwriter shall endeavour to ensure all professional dealings are effected in a
prompt, efficient and effective manner.
5. An underwriter shall, at all times, render high standards of service, exercise due
diligence, ensure proper care and exercise independent professional judgment.
● An underwriter shall not make any statement, either oral or written, which would
misrepresent-
○ the services that the underwriter is capable of performing for its client, or has
rendered to any other issuer company;
○ his underwriting commitment.
● An underwriter shall avoid conflict of interest and make adequate disclosure of his
● interest.
● An underwriter shall put in place a mechanism to resolve any conflict of interest
situation that may arise in the conduct of its business or where any conflict of interest
arises, shall take reasonable steps to resolve the same in an equitable manner.
● An underwriter shall make appropriate disclosure to the client of its possible source or
potential areas of conflict of duties and interest while acting as underwriter which would
impair its ability to render fair, objective and unbiased services.
● An underwriter shall not divulge to other issuer, press or any party any confidential
information about its issuer company, which has come to its knowledge and deal in
securities of any issuer company without making disclosure to the Board as required
under the Regulations and also to the Board of directors of the issuer company.
● An underwriter shall not discriminate amongst its clients, save and except on ethical
and commercial considerations.
● An underwriter shall ensure that any change in registration status/any penal action
taken by board or any material change in financials which may adversely affect the
interests of clients/investors is promptly informed to the clients and any business
remaining outstanding is transferred to another registered person in accordance with
any instructions of the affected clients/investors.
● An underwriter shall maintain an appropriate level of knowledge and competency and
abide by the provisions of the Act, regulations and circulars and guidelines issued by
the Board. The underwriter shall also comply with the award of the Ombudsman
passed under the Securities and Exchange Board of India (Ombudsman) Regulations,
2003.
● An underwriter shall ensure that the board is promptly informed about any action, legal
proceedings, etc. initiated against it in respect of any material breach or noncompliance
● by it, of any law, rules, regulations, directions of the board or of any other regulatory
body.
● An underwriter shall not make any untrue statement or suppress any material fact in
any documents, reports, papers or information furnished to the Board.
● (a) An underwriter or any of his employees shall not render, directly or indirectly any
investment advice about any security in the publicly accessible media, whether
● (b) In case, an employee of an underwriter is rendering such advice, the underwriter
shall ensure that he shall disclose his interest, the interest of his dependent family
members and that of the employer including their long or short position in the said
security, while rendering such advice.
● An underwriter or any of its directors, partners or manager having the management of
the whole or substantially the whole of affairs of the business, shall not either through
its account or their respective accounts or through their associates or family members,
relatives or friends indulge in any insider trading.
● An underwriter shall not indulge in any unfair competition, which is likely to be harmful
to the interest of other underwriters carrying on the business of underwriting or likely to
place such other underwriters in a dis-advantageous position in relation to the
underwriter while competing for, or carrying out any assignment.
● An underwriter shall have internal control procedures and financial and operational
capabilities which can be reasonably expected to protect its operations, its clients and
other registered entities from financial loss arising from theft, fraud, and other dishonest
acts, professional misconduct or omissions.
● An underwriter shall provide adequate freedom and powers to its compliance officer for
the effective discharge of his duties.
● An underwriter shall develop its own internal code of conduct for governing its internal
operations and laying down its standards of appropriate conduct for its employees and
officers in the carrying out of their duties. Such a code may extend to the maintenance
of professional excellence and standards, integrity, confidentiality, objectivity, avoidance
of conflict of interests, disclosure of shareholdings and interests, etc.
● An underwriter shall ensure that good corporate policies and corporate governance is
in place.
● An underwriter shall ensure that any person it employs or appoints to conduct business
is fit and proper and otherwise qualified to act in the capacity so employed or appointed
(including having relevant professional training or experience).
● An underwriter shall ensure that it has adequate resources to supervise diligently and
does supervise diligently persons employed or appointed by it to conduct business on
its behalf.
● An underwriter shall be responsible for the acts or omissions of its employees and
agents in respect to the conduct of its business.
● An underwriter shall ensure that the senior management, particularly decision makers
have access to all relevant information about the business on a timely basis.
● An underwriter shall not be party to or instrumental for-
○ creation of false market;
○ price rigging or manipulation; or
○ passing of unpublished price sensitive information in respect of securities which
are listed and proposed to be listed in any stock exchange to any person or
intermediary.
 Agreement with Client
● Section 14: Every underwriter has to enter into an agreement with issuing Company.
● Content of the AGreement:
○ the period for which the agreement shall be in force;
○ the allocation of duties and responsibilities between the underwriter and the
client;
○ the amount of underwriting obligations;
○ the period, within which the underwriter has to subscribe to the issue after being
intimidated by or on behalf of such body corporate;
○ the amount of commission or brokerage payable to the underwriter;
○ details of arrangements, if any, made by the underwriter for fulfilling the
underwriting obligations.
 General Responsibilities
● Section 15: General Responsibilities of the Underwriter are:
○ The underwriter shall not derive any direct or indirect benefit from underwriting
the issue other than the commission or brokerage payable under an agreement
for underwriting.
○ The total underwriting obligations under all the agreements shall not exceed
twenty times of his net worth.
○ Every underwriter, in the event of being called upon to subscribe for securities of
a body corporate pursuant to an agreement shall subscribe to such securities
within 45 days of the receipt of such intimation from such body corporate.
 Compliance Officer
● Section 17A: Appointment of Compliance Officer
○ Every underwriter shall appoint a compliance officer who shall be responsible for
monitoring the compliance of the Act, rules and regulations, notifications,
guidelines, instructions, etc., issued by the Board or the Central Government and
for redressal of investors’ grievances.
○ The compliance officer shall immediately and independently report to SEBI any
non-compliance observed by him.
 Power to Call for Information
● Section 18: Power to Call for Information:
○ The SEBI may at any time call for any information from an underwriter with
respect to any matter relating to underwriting business.
○ Where any information is called by SEBI, it shall be the duty of the underwriter to
furnish such information.
 Inspection and Disciplinary Proceedings
● Section 19: Board’s right to inspect.
○ Where it appears to the SEBI so to do, it may appoint one or more persons as
inspecting authority to undertake the inspection of the books of account, other
records and documents of the underwriter.
○ The purposes for inspection:
■ to ensure that the books of account and other records and documents are
being maintained in the manner required;
■ that the provisions of the Act, rules and regulations are being complied with;
■ to investigate into the complaints received from investors, other
underwriters or any other person or any matter having a bearing on the
activities of the underwriter; and
■ to investigate suo motu in the interest of securities business or investors’
interest into the affairs of the underwriter.
 Liability for Action in case of Default
● Section 25: liability will be govern by chapter V of the SEBI (Intermediaries) Regulation,
2008
● Section 27 (Intermediaries) Regulation:
○ suspension of certificate of registration for a specified period;
○ cancellation of certificate of registration;
○ prohibiting the noticee to take up any new assignment or contract or launch a
new scheme for the period specified in the order;
○ debarring a principal officer of the noticee from being employed or associated
with any registered intermediary or other registered person for the period
specified in the order;
○ debarring a branch or an office of the noticee from carrying out activities for the
○ specified period;
○ warning the noticee.
 Debenture Trustees
● A debenture is a debt instrument issued by a company, known as the issuer company,
and those who subscribe to such debentures are known as the debenture holders.
● A debenture is an instrument of debt executed by the company acknowledging its
obligation to repay the sum at a specified rate and also carrying an interest. It is one of
the methods of raising the loan capital of the company.
● Types of Debentures
○ Secured: Debenture is secured by the creation of charge on the assets of the
issuer company which serves as a collateral or security
○ Unsecured: with no collateral or security
● Trustee is an individual who is responsible for a property or an organization on behalf
of some other individual or a third party.
● Section 2 (bb) of SEBI (Debenture Trustee) Regulation, 1993
○ “debenture trustee” means a trustee of a trust deed for securing any issue of
debentures of a body corporate.
 Reasons for Appointment
● A Debenture Trustee is appointed by the issuer company and is given the task to

protect the interests of the debenture holders and he will also serve as a mediate factor

between the issuer company and the debenture holder.

● The issuer company mortgage its property in the name of the Debenture Trustee and

he shall solely exercise his powers as a trustee over it.

● The Debenture Holders can’t use such mortgaged property and they can benefit from it

when the Debenture Trustee sells such property in order to redeem their debentures.
 Registration of Debenture Trustee
● Govern by SEBI (Debenture Trustee) Regulations, 1993.
● Section 7: Eligibility for being Debenture Trustee
○ a scheduled bank carrying on commercial activity;
○ a public financial institution
○ an insurance company; or
○ body corporate.
● Section 3: Application for grant of certificate of initial registration
○ Application to SEBI
● Section 6: Consideration of Application- Whether the applicant:
○ has the necessary infrastructure like adequate office space, equipments, and
manpower to effectively discharge his activities;
○ has any past experience as a debenture trustee or has in his employment
minimum two persons who had the experience in matters which are relevant to a
debenture trustee;
○ or any person, directly or indirectly connected with the applicant has not been
granted registration by the Board under the Act;
○ has in his employment at least one person who possesses the professional
qualification in law from an institution recognised by the Government;
○ or any of its director or principal officer is or has at any time been convicted for
any offence involving moral turpitude or has been found guilty of any economic
offence ;
○ is a fit and proper person Schedule II of SEBI (Intermediaries) Regulation,
2008;
○ capital adequacy requirement shall not be less than the networth of two crore
rupees.
 Fees
● Schedule II, Regulations 12
○ For Initial Registration- 20,00,000₹ for a tenure of 5 years

○ For Permanent Registration- Rs.9,00,000₹ after the completion of the above

initial period.
 Condition of Registration
● Section 9A:
○ Where debenture trustee proposes change in control, it shall obtain prior
approval of the Board for continuing to act as such after the change;
○ It shall pay the fees for initial registration or permanent registration in the manner
provided in these regulations;
○ It shall take adequate steps for redressal of grievances of the investors within one
month of the date of the receipt of the complaint and keep the Board informed
about the number, nature and other particulars of the complaints received and the
manner in which such complaints have been redressed;
○ It shall maintain capital adequacy requirements specified in regulation 7A i.e 2
Crore at all times during the period of the registration.
○ It shall abide by the regulations made under the Act in respect of the activities
carried on by it as a debenture trustee.
 Obligation Before Appointment
● Section 13:
○ Debenture Trustee needs to enters into a written agreement with the body
corporate before the opening of the subscription list for issue of debentures;
○ This agreement shall contain:
■ That the debenture trustee has agreed to act as such under the trust deed
for securing an issue of debentures for the body corporate;
■ The time limit within which the security for the debentures shall be created.
● Section 13A:
○ No debenture trustee shall act as such for any issue of debentures in case-
■ It is an associate of the body corporate, or
■ It has lent and the loan is not yet fully repaid or is proposing to lend money
to the body corporate.
 Duty of Debentures Trustee
● Section 15:
○ call for periodical reports from the body corporate;
○ take possession of trust property in accordance with the provisions of the trust
deed;
○ supervise the implementation of the conditions regarding creation of security for
the debentures and debenture redemption reserve, wherever applicable;
○ enforce security in the interest of the debenture holders;
○ do such acts as are necessary in the event the security becomes enforceable;
○ carry out such acts as are necessary for the protection of the debenture holders
and to do all things necessary in order to resolve the grievances of the debenture
holders;
○ ensure on a continuous basis that the property charged to the debentures is
available and adequate at all times to discharge the interest and principal amount
payable in respect of the debentures and that such property is free from any
other encumbrances save and except those which are specifically agreed to by
the debenture trustee;
○ exercise due diligence to ensure compliance by the body corporate, with the
provisions of the Companies Act, the listing agreement of the stock exchange or
the trust deed;
○ to take appropriate measures for protecting the interest of the debenture holders
as soon as any breach of the trust deed or law comes to his notice;
○ to ascertain that the debentures have been converted or redeemed in
accordance with the provisions and conditions under which they are offered to the
debenture holders;
○ inform the Board immediately of any breach of trust deed or provision of any law;
○ appoint a nominee director on the Board of the body corporate in the event of:
■ two consecutive defaults in payment of interest to the debenture holders; or
■ default in creation of security for debentures; or
■ default in redemption of debentures;
○ Communicate to the debenture holders on half yearly basis the compliance of the
terms of the issue by the body corporate, defaults, if any, in payment of interest or
redemption of debentures and action taken therefor.
● The debenture trustee shall:
○ obtain reports from the lead bank regarding progress of the project;
○ monitor utilisation of funds raised in the issue;
○ obtain a certificate from the issuer's auditors:
● in respect of utilisation of funds during the implementation period of the project; and
● in the case of debentures issued for financing working capital, at the end of each
accounting year.
● A debenture trustee shall call or cause to be called by the body corporate a meeting of
all the debenture holders on-
○ a requisition in writing signed by at least one-tenth of the debenture holders in
value for the time being outstanding;
○ the happening of any event, which constitutes a default or which in the opinion of
the debenture trustees affects the interest of the debenture holders.
● No debenture trustee shall relinquish its assignments as debenture trustee in respect of
the debenture issue of any body corporate, unless and until another debenture trustee
is appointed in its place by the body corporate.
● A debenture trustee shall maintain the networth requirements as specified in these
regulations on a continuous basis and shall inform the Board immediately in respect of
any shortfall in the networth and in such a case it shall not be entitled to undertake new
assignments until it restores the networth to the level of specified requirement within
the time specified by the Board.
● A debenture trustee may inspect books of account, records, registers of the body
corporate and the trust property to the extent necessary for discharging its obligations.
 Information to SEBI
● Section 18
○ Every debenture trustee shall submit the following information and documents to
the SEBI-
■ the number and nature of the grievances of the debenture holders received
and resolved;
■ copies of the trust deed;
■ non-payment or delayed payment of interest to debenture holders, if any, in
respect of each issue of debentures of a body corporate; details of
despatch and transfer of debenture certificates giving therein the dates,
mode, etc.;
■ any other particular or document which is relevant to debenture trustee.
○ Where any information is called by SEBI, it shall be the duty of the debenture
trustees to furnish such information.
 Other Provisions
● Section 17A: Appointment of compliance officer.
● Chapter IV: Inspection and Disciplinary Proceedings
○ Section 24: Appointment of Auditor.
● Chapter V: Procedure of action in case of default.
○ Section 25: Liability for action in case of default.
■ Regulated by Chapter V of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.
● Schedule II: Fees
○ Twenty lakh rupees at the time of grant of certificate of registration.
○ Nine lakh rupees every three years from the sixth year.
● Schedule III:
○ Code of Conduct
 Banker to an Issue
● Section 2(aa) of SEBI (Banker to an Issue) Regulations, 1994
○ banker to an issue” means a scheduled bank carrying on all or any of the
following activities, namely-
■ acceptance of application and application monies;
■ acceptance of allotment or call monies;
■ refund of application monies;
■ payment of dividend or interest warrants
● Issue: An issue is the process of offering securities in order to raise funds from
investors. Companies may issue bonds or stocks to investors as a method of financing
the business.
● Issue refers to sale/purchase of securities.
 Registration
● Regulated by SEBI (Bankers to an Issue) Regulation, 1994
● Section 3
○ Application for the grant of certificate.
○ Only a scheduled bank can apply.
● Section 6: Consideration of application
○ the applicant has the necessary infrastructure, communication and data
processing facilities and manpower to effectively discharge its activities;
○ the applicant or any of its directors is not involved in any litigation connected with
the securities market and which has an adverse bearing on the business of the
applicant or has not been convicted of any economic offence;
○ the applicant is a scheduled bank;
○ the applicant is a fit and proper person;
○ grant of certificate to the applicant is in the interest of investors.
 Condition of Registration
● Section 8A
○ where the banker to an issue proposes change in control, it shall obtain prior
approval of the Board for continuing to act as such after the change;
○ it shall enter into a legally binding agreement with the body corporate for or on
whose behalf it is acting as banker to an issue stating therein the allocation of
duties and responsibilities between itself and the body corporate for the issue for
which it is acting as a banker to an issue;
○ it shall pay the fees for registration, in the manner provided in these regulations.
○ It shall take adequate steps for redressal of grievances of the investors within one
month of the date of the receipt of the complaint and keep the Board informed
about the number, nature and other particulars of the complaints received and the
manner in which such complaints have been redressed;
○ it shall abide by the regulations made under the Act in respect of the activities
carried on by it as banker to an issue.
○ it shall immediately intimate the Board, details of changes that have taken place
in the information that was submitted, while seeking registration.
 Obligations and Responsibilities
● Section 12: Maintenance of books of account, records and the documents.
○ the number of applications received, the names of the investors, the dates on
which the applications were received and the amount so received from the
investors;
○ the time within which the applications received from the investors were forwarded
to the body corporate or registrar to an issue, as the case may be;
○ dates and amount of refund monies paid to the investors;
○ dates, names and amount of dividend/interest warrant paid to the investors
○ Intimate to the SEBI the place where the records and documents are kept.
○ The banker to an issue shall preserve these records and documents for a
minimum period of three years.
● Section 13: Furnishing of information to the Board
○ the number of issues for which he was engaged as a banker to an issue;
○ the number of applications and details of the application monies received by the
banker to an issue;
○ the dates on which the applications received from the investors were forwarded
to the body corporate or registrar to an issue;
○ the dates on which and the amount refunded to the investors;
○ the payment or dividend/or interest warrants to the investors.
● Section 15:
○ Every banker to an issue shall inform the Board forthwith if any disciplinary action
is taken by the Reserve Bank against the banker to an issue only in relation to
issue payment work.
○ If RBI prohibited the banker to an issue from carrying on the activities, the
certificate shall be deemed to have been suspended or cancelled as the case
may be.
 Agreement with Body Corporate
● Section 14:
○ Every banker to an issue shall enter into an agreement with the body corporate
for whom it is acting as banker to an issue.
○ Content of this agreement-
■ the number of centres at which the applications and application monies of
an issue of a body corporate will be collected from the investors;
■ the time within which the statement regarding the applications and
application monies received from the investors investing in an issue of a
body corporate will be forwarded to the registrar to an issue or the body
corporate, as the case may be;
■ that a daily statement will be sent by the designated controlling branch of
the bankers to the issue to the registrar to an issue indicating the number of
applications received on that date from the investors investing in the issue
of a body corporate, and the amount of application money received.
 Other Provisions
● Section 16A: Appointment of compliance officer.
● Chapter IV: Procedure of inspection
● Chapter V: Procedure of action in case of default.
○ Section 23: Liability for action in case of default.
■ Regulated by Chapter V of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.
● Schedule II: Fees
○ Twenty lakh rupees at the time of grant of certificate of registration.
○ Nine lakh rupees every three years from the sixth year.
● Schedule III Regulation 16
○ Code of Conduct
 Credit Rating Agency
● Regulated by SEBI (Credit Rating Agency) Regulation, 1999
● Section 2 (h)
○ Credit Rating Agency means a body corporate which is engaged in, or proposes
to be engaged in, the business of rating of securities offered by way of public or
rights issue;
● Section 2 (q)
○ Rating" means an opinion regarding securities, expressed in the form of standard
symbols or in any other standardised manner, assigned by a credit rating agency
and used by the issuer of such securities, to comply with a requirement specified
by these regulations;
● CRA rates debtors on the basis of their ability to pay back their interests and loan
amount on time and the probability of them defaulting.
● These agencies may also analyse the creditworthiness of debt issuers and provide
credit ratings to only organisations and not individuals consumers.
 Registration
● Regulated by SEBI (Credit Rating Agency) Regulation, 1999
● Section 3
○ Application for the grant of certificate.
● Section 4: Who can apply for registration
○ a public financial institution
○ a scheduled commercial bank
○ a foreign bank operating in India with the approval of the Reserve Bank of India;
○ a foreign credit rating agency recognised by or under any law for the time being
in force in the country of its incorporation, having at least five years experience in
rating securities;
○ any company or a body corporate, having continuous net worth of minimum
rupees one hundred crores as per its audited annual accounts for the previous
five years prior to filing of the application with the Board for the grant of certificate
under these regulations.
 Eligibility for Registration
● Section 5
○ the applicant is set up and registered as a company under the Companies Act.
○ the applicant has, in its Memorandum of Association, specified rating activity as
one of its main objects;
○ the applicant has a minimum net worth of rupees five crores.
○ the applicant has adequate infrastructure, to enable it to provide rating services in
accordance with the provisions of the Act and these regulations;
○ the applicant have professional competence, financial soundness and general
reputation of fairness and integrity in business transactions, to the satisfaction of
the SEBI;
○ Applicant shall is involved in any legal proceeding connected with the securities
market, which may have an adverse impact on the interests of the investors;
○
○ Applicant shall not been convicted of any offence involving moral turpitude or any
economic offence;
○ the applicant has, in its employment, persons having adequate professional and
other relevant experience to the satisfaction of the Board;
○ neither the applicant, nor any person directly or indirectly connected with the
applicant has in the past been-
■ refused by the Board a certificate under these regulations or
■ subjected to any proceedings for a contravention of the Act or of any rules
or regulations made under the Act.
○ the applicant, in all other respects, is a fit and proper person for the grant of a
certificate;
○ grant of certificate to the applicant is in the interest of investors and the securities
market.
 Conditions of Certificate
● Section 9
○ the credit rating agency shall comply with the provisions of the Act, the
regulations made under and the guidelines, directives, circulars and instructions
issued by the Board from time to time on the subject of credit rating.
○ where any information or particulars furnished to the SEBI by a credit rating
agency:
■ is found to be false or misleading in any material particular ; or
■ has undergone change subsequently to its furnishing at the time of the
application for a certificate;
● the credit rating agency shall forthwith inform the Board in writing
○ where the credit rating agency proposes change in control, it shall obtain prior
approval of the Board for continuing to act as such after the change.
 Agreement with the client
● Section 14: Written Contract containing
○ the rights and liabilities of each party in respect of the rating of securities
○ the fee to be charged by the credit rating agency;
○ the client shall agree to a periodic review of the rating by the credit rating agency
during the tenure of the rated instrument;
○ the client shall agree to co-operate with the credit rating agency for true and
accurate rating
○ the credit rating agency shall disclose to the client the rating assigned to the
securities of the latter through regular methods of dissemination, irrespective of
whether the rating is or is not accepted by the client;
○ The client shall agree to disclose, in the offer document:
■ the rating assigned to the client’s listed securities by any credit rating
agency during the last three years and
■ any rating given in respect of the client’s securities by any other credit
rating agency, which has not been accepted by the client.
 Monitoring of Ratings
● Section 15
○ Every credit rating agency shall, during the lifetime of securities rated by it
continuously monitor the rating of such securities.
○ Every credit rating agency shall disseminate information regarding newly
assigned ratings, and changes in earlier rating promptly through press releases
and websites, and, in the case of securities issued by listed companies, such
information shall also be provided simultaneously to the concerned regional stock
exchange and to all the stock exchanges where the said securities are listed.
 Procedure of reviewing of ratings
● Section 16
○ periodic reviews of all published ratings during the lifetime of the securities.
○ If the client does not co-operate- credit rating agency shall carry out the review on
the basis of the best available information.
■ disclose to the investors the fact that the rating is based on best avaibale
information, without client’s co-opertaion.
○ A credit rating agency shall not withdraw a rating so long as the obligations under
the security rated by it are outstanding, except where the company whose
security is rated is wound up or merged or amalgamated with another company.
 Other Provisions
● Section 20A: Appointment of compliance officer.
● Chapter V: Procedure of inspection
● Chapter VI: Procedure of action in case of default.
○ Section 34: Liability for action in case of default.
■ Regulated by Chapter V of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.
● Schedule II: Fees
○ Application Fee: 50,000₹
○ Initial Registration Fee: 26,66,700₹
○ Permanent Registration Fee: 15,00,000₹
○ Renewal Fee: 10,00,000₹
● Schedule III Regulation 13
○ Code of Conduct
 Merchant Bankers
● Section 2 (cb)
○ “merchant banker” means any person who is engaged in the business of issue
management either by making arrangements regarding selling, buying or
subscribing to securities or acting as manager, consultant, adviser or rendering
corporate advisory service in relation to such issue management;
● Categories of Merchant Bankers (As per Section 3 (2))
○ Category I, that is—
■ to carry on any activity of the issue management, which will, inter alia,
consist of preparation of prospectus and other information relating to the
issue, determining financial structure, tie up of financiers and final allotment
and refund of the subscriptions; and
■ to act as adviser, consultant, manager, underwriter, portfolio manager;
○ Category II, that is to act as adviser, consultant, co-manager, underwriter,
portfolio manager;
○ Category III, that is to act as underwriter, adviser, consultant to an issue;
○ Category IV, that is to act only as adviser or consultant to an issue.
 Registration of Merchant Bankers
● Regulated by SEBI (Merchant Bankers) Regulation, 1992
● Section 3: Registration of Merchant Bankers
○ Section 3 (2A) (iii)
■ an applicant can carry on the activity as portfolio manager only if he obtains
separate certificate of registration under the provisions of the Securities and
Exchange Board of India (Portfolio Manager) Regulations, 1993.
● Section 6:Consideration of Application
○ the applicant shall be a body corporate other than a non-banking financial
company as defined under clause (f) of section 45-I of the Reserve Bank of India
Act, 1934
○ the applicant has the necessary infrastructure like adequate office space,
equipments, and manpower to effectively discharge his activities;
○ the applicant has in his employment minimum of two persons who have the
experience to conduct the business of merchant banker;
○ a person directly or indirectly connected with the applicant has not been granted
registration by the Board.
○ The applicant fulfils the capital adequacy requirement specified in regulation 7
(net worth of not less than five crore rupees);
○ The applicant, his partner, director or principal officer is not 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 has not at any time been
convicted for any offence involving moral turpitude or has been found guilty of
any economic offence;
○ The applicant has the professional qualification from an institution recognised by
the Government in finance, law or business management;
○ the applicant is a fit and proper person;
○ grant of certificate to the applicant is in the interest of investors.
 Condition of Registration
● Section 9A
○ where the merchant banker proposes change in control, it shall obtain prior
approval of the Board for continuing to act as such after the change;
○ it shall pay the fees for registration, in the manner provided in these regulations;
○ it shall take adequate steps for redressal of grievances of the investors within one
month of the date of the receipt of the complaint and keep the Board informed
about the number, nature and other particulars of the complaints received;
○ it shall maintain capital adequacy requirements specified in regulation 7 at all
times during the period of the registration;
○ it shall abide by the regulations made under the Act in respect of the activities
carried on by it as merchant banker.
○ it shall immediately intimate the Board, details of changes that have taken place
in the information that was submitted, while seeking registration.
 General Obligations & Responsibilities
● Section 13A: Merchant banker not to associate with any business other than that of the
securities market
○ Exceptions: a Bank or a Public Financial Institution
● Section 14: Maintenance of books of account, records etc.
○ a copy of balance sheet as at the end of the each accounting period;
○ a copy of profit and loss account for that period;
○ a copy of the auditor’s report on the accounts for that period;
○ a statement of financial position.
○ Records and documents pertaining to due diligence exercised in pre-issue and
post- issue activities of issue management and in case of takeover, buyback and
delisting of securities.
○ shall intimate to the Board the place where the books of account, records and
documents are maintained.
○ shall preserve the books of account and other records and documents
maintained for a minimum period of five years (Section 16)
● Section 15: Submission of half-yearly results
● Section 21: Lead merchant banker not to associate with a merchant banker without
registration.
● Section 21A: Merchant banker not to act as such for an associate.
○ A merchant banker shall not lead manage any issue or be associated with any
activity, if he is a promoter or a director or an associate of the issuer of securities
or of any person making an offer to sell or purchase securities in terms of any
regulations made by the Board:
○ an “associate of the issuer or person” if:
■ either of them controls, directly or indirectly through its subsidiary or holding
company, not less than fifteen per cent. of the voting rights in the other; or
■ either of them, directly or indirectly, by itself or in combination with other
persons, exercises control over the other; or
■ there is a common director, excluding nominee director, amongst the issuer,
its subsidiary or holding company and the merchant banker.
● Section 22: Underwriting obligations
○ for every issue to be managed- the lead merchant banker (Category I)
■ a minimum underwriting obligation of 5% of the total underwriting
commitment or rupees twenty-five lacs, whichever is less.
■ if unable to accept the minimum underwriting obligation, he shall make
arrangement for having the issue underwritten to that extent by a merchant
banker associated with the issue and shall keep the Board informed of such
arrangement.
● Section 26: Acquisition of shares prohibited.
○ No merchant banker or any of its directors, partner or manager or principal officer
shall either on their respective accounts or through their associates or relatives,
enter into any transaction in securities of bodies corporate on the basis of
unpublished price sensitive information obtained by them during the course of
any professional assignment either from the clients or otherwise.
 Other Provisions
● Section 28A: Appointment of compliance officer.
● Chapter IV: Procedure of inspection
● Chapter V: Procedure of action in case of default.
○ Section 35: Liability for action in case of default.
■ Regulated by Chapter V of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.
● Schedule II: Fees
○ Application Fee: 50,000₹
○ Registration Fee: 20 Lakh ₹ (for first 5 year)
○ Renewal Fee: 9 Lakh ₹ (for every 3 years, after first 5 year)
● Schedule III Regulation 13
○ Code of Conduct
 Share Transfer Agents
● Section 2 (g) share transfer agent
○ any person, who on behalf of any body corporate, maintains the records of holders of
securities issued by such body corporate and deals with all matters connected with the
transfer and redemption of its securities;
○ a department or division, by whatever name called, of a body corporate performing the
activities referred above, if at any time the total number of the holders of its securities
issued exceed one lakh;
● Section 2(f) registrar to an issue
○ collecting applications from investors in respect of an issue;
○ keeping a proper record of applications and monies received from investors or paid to
the seller of the securities; and
○ assisting body corporate or person or group of persons in:
■ determining the basis of allotment of securities in consultation with stock
exchange;
■ finalising list of persons entitled to allotment;
■ processing and dispatching allotment letters, refund orders or certificates and
other related documents in respect of an issue
 Registration
● Regulated by SEBI (Registrar to an Issue and Share Transfer Agents) Regulation, 1993
● Section 3: Application for grant of certificate
○ 2 Categories of Certificates
■ Category I: to carry on the activities as a registrar to an issue and share
transfer agent;
■ Category II: to carry on the activity either as a registrar to an issue or as a
share transfer agent;
 Consideration of Application
● Section 6: The applicant
○ has the necessary infrastructure like adequate office space, equipments and
man- power to effectively discharge his activities;
○ has any past experience in the activities;
○ or any person directly or indirectly connected with him has not been granted
registration by the Board under the Act;
○ fulfills the capital adequacy requirement specified in regulation 7
■ Category I: 6 Lakh ₹
■ Category II: 3 Lakh ₹
○ is subjected to any disciplinary proceedings under the Act;
○ or any of its director, partner or principal officer is or has at any time been
convicted for any offence involving moral turpitude or has been found guilty of
any economic offence.
○ is a fit and proper person.
 Condition of Registration
● Section 9 A:
○ When there is change its status or constitution, it shall obtain prior approval of the
Board for continuing to act as such after the change;
○ it shall enter into a legally binding agreement with the body corporate or the
person or group of persons for or on whose behalf it is acting as a registrar to an
issue or a share transfer agent stating therein the allocation of duties and
responsibilities between itself and such body corporate or person or group of
persons, as the case may be;
○ shall pay the fees for registration or renewal.
○ shall maintain capital adequacy requirements at all times.
○ shall take adequate steps for redressal of grievances of the investors within one
month, and keep the Board informed about such complaints.
○ it shall abide by the regulations made under the Act in respect of the activities
carried on by it as a registrar to an issue or a share transfer agent.
 General Obligations & Responsibilities
● Section 13 A: Registrar to an Issue not to act as such for an associate-
○ No registrar to an issue shall act as such registrar for any issue of securities in
case he or it is an associate of the body corporate issuing the securities.
○ Associate means
■ controls directly or indirectly not less than 10 percent of the voting power of
the body corporate,
■ he or any of his relative is a director or promoter of the body corporate
● Section 14: To maintain proper books of accounts and records, etc
○ Record for past 3 years,
○ Maintain for at least 3 years (Section 15)
 Other Provisions
● Section 15A: Appointment of compliance officer.
● Chapter IV: Procedure of inspection
○ Section 21: Appointment of Auditor
● Chapter V: Procedure of action in case of default.
○ Section 22: Liability for action in case of default.
■ Regulated by Chapter V of the Securities and Exchange Board of India
(Intermediaries) Regulations, 2008.
● Schedule II: Fees
○ Application Fee: 10,000₹
○ Registration Fee: 3 Lakh ₹ (for first 3 year)
○ Renewal Fee: 1 Lakh Fifteen Thousand ₹ (for every 3 years, after first 3 year)
● Schedule III Regulation 13
○ Code of Conduct
SEBI (Intermediaries) Regulation, 2008
 Registration of Intermediaries
● Section 3: Application for grant of certificate
● Section 4: Disclosure of information
● Section 5: Furnishing of information and clarification
● Section 6: Verification of information
● Section 7: Consideration of application
● Section 8: Procedure for grant of certificate
● Section 9: Conditions of certificate
● Section 10: Effect of refusal to grant certificate or expiry of certificate
● Section 11: Period of validity of certificate
 General Obligations of Intermediaries

● Section 12: General obligations

● Section 13: Redressal of investor grievances
● Section 14: Appointment of compliance officer
● Section 15: Investment advice
● Section 16: Code of conduct
 Inspection and Disciplinary Proceedings

● Section 17: Right of inspection by the Board

● Section 18: Notice before inspection
● Section 19: Obligations of Intermediary on inspection
● Section 20: Appointment of auditor or valuer
● Section 21: Submission of report to the Board
 ACTION IN CASE OF DEFAULT AND MANNER OF
SUSPENSION OR CANCELLATION OF CERTIFICATE
● Section 22: Definitions
● Section 23: Cancellation or suspension of registration and other actions
● Section 24: Appointment of designated authority
● Section 25: Issuance of notice
● Section 26: Reply by the noticee
● Section 27: Action in case of default
● Section 28: Procedure for action on receipt of the recommendation.
● Section 29: Common order
● Section 30: Intimation of the order
● Section 31: Surrender of any certificate of registration
● Section 32: Effect of debarment, suspension, cancellation or surrender
● Section 33: Appeal to Securities Appellate Tribunal