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INTRODUCTION
DEFINITION
MERCHANT BANKING is defined as an institution which covers a wide range of activities such as management of customer services, portfolio mgmt, credit syndication, acceptance credit, counseling, insurance etc
ORIGIN
Originated
Extension
Need for merchant banking was felt with rapid growth in number & size of issues made in primary market. Merchant banking services were started by foreign banks, namely National Grindlays in 1967 & City bank in 1970 .
Merchant banking services were offered along with other traditional banking services.
SBI was first Indian bank to set up Merchant banking division in 1972.
the demand for long-term fund required by the ever expanding industry and trade. through
Services. Consent.
Management.
Loan Syndication.
Corporate Restructuring. Revival Packages for Sick Units.
Miscellaneous Services.
are free to appoint one or more agencies as managers to the issue. SEBI guidelines prescribe that issue should be managed at least by one authorized merchant banker. Not more than two M.B. should be appointed as lead managers to a public issue. In issue over Rs.100 Corers, maximum up to four M.B. could be associated as managers.
To enter into an agreement Certificate of registration with SEBI Work of issue management Clearly defined responsibility Minimum underwriting obligation Due care & diligence Submitting due diligence certificates Submit all particulars to SEBI Suggestions or modifications Collections of the amount Ensuring refund Inform depository participants
Ability
Indian market largest emerging market Domestic and foreign investors setting up their biz here. Many public and private issues coming up Growth in new issues market Scope for M.Bs. have risen
2) Entry of FII
Indian capital market is globalised Indian Cos. are permitted to invest in euro issues. Similarly, FII are permitted to invest in India. Hence they need M.Bs to advise them for their investment in India.
3) Changing policy of FI
Liberalisation of policies FI would require expert services of M.Bs for project appraisal, financial management, financial restructuring etc.
New financial instruments have come up. M.Bs are market makers for these instruments.
6) Corporate Restructuring
Liberalisation and globalisation Competition in corporate sector becoming intense. Cos. reviewing their strategies, structure and functioning etc. leading to corporate restructuring. Good opportunity to M.Bs to extend their area of operation.
INVE$TMENT
BANKING
History
Modern
banking finds its roots in Italy in the 13th century. The cities financed its developmental activities and wars through issuance of bonds or from borrowing through public. Worlds oldest known bank has its roots in Italy. Its The Monte di Piet, or Monte Pio set up in 1472.
Investment banks help companies and governments and their agencies to raise money by issuing and selling securities in the primary market. They assist public and private corporations in raising funds in the capital markets (both equity and debt),as well as in providing strategic and advisory services for mergers, acquisitions and other types of financial transactions.
SBI was the first Indian public sector bank to set up its investment banking division in 1972. SBI Caps and IDBI Caps are two prime examples of investment banks in India today. Currently, there are 300 investment banks registered with SEBI. Currently, without holding a certificate of registration granted by the Securities and Exchange Board of India, no person can act as a investment banker.
Source www.livemint.com
FRONT OFFICE
FRONT OFFICE
Front Office
Pitching to various clients and institutions Setting the terms and conditions for any form of deal Trading of securities on behalf of clients In the process of market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales desks communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need.
Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. Structuring has been a relatively recent division as derivatives have come into play, which involves creating complex structured products which typically offer much greater margins and returns than underlying cash securities.
MIDDLE OFFICE
Middle Office
Middle office usually consists of traders, analysts, and managers who are knowledgeable of trading activities but usually dont engage in market activities themselves. ( Chinese Wall Policy) Risk Management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, setting limits on the amount of capital that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a desk overall.
Another
key Middle Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the client) correctly and on time (typically within 30 minutes of trade execution).
BACK OFFICE
Back Office
Operations
involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. Every major investment bank has considerable amounts of in-house software, created by the Technology team, who are also responsible for Computer and Telecommunicationsbased support.
7. 8. 9.
Company asks for bids Selecting lead managers as per bids Prepare draft offer prospectus document for IPO. Road shows for the IPO Decide the issue date & issue price band with the help of Issuer Company RHP & IPO Application Forms are printed and posted to syndicate members; through which they are distributed to investors Investor Bidding for the public issue Allocation of shares as per demand Stocks listed on the market
Lead managers,also known as Book Running Lead Manager and Co Book Running Lead Managers. Registrars. Legal advisors. Auditors. SEBI. Credit rating agencies. Syndicate members.( generally banks ) Investors (Retail Individual Investor (RII), High Net worth Individual (HNI), Non-institutional bidders, Qualified Institutional Bidders (QIB's).) Advertising agencies.
Appoints lead manager as book runner. Appoints registrar of the issue. Appoints syndicate members.
SEBI reviews draft offer prospectus. Reverts it back to Lead Manager if needs clarification or changes. SEBI approve the draft offer prospectus, the draft offer prospectus has now become Offer Prospectus.