Page 55 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes  The merchant banker cannot carry on any business other than that of the securities market.
 The merchant banker is required to submit to the SEBI ‘Due Diligence Certificate’ at least
two weeks before the opening of the issue for subscription. The Certificate has to be given
with respect to the following:
 That the documents contain all the details relevant to the issue.
 That all legal requirements pertaining to the issue have been fully compiled with.
 That all disclosures are true, fair and adequate to enable the investors to make a
well-informed decision regarding investment in the proposed issue.
The above certificate should be based on the basis of the verification of the contents of the
prospectus/letter of offer regarding the issue and the reasonableness of the views expressed
therein.
 The merchant banker is under obligation to submit to the SEBI various documents relating
to the issue, draft prospectus/letter of offer and other literature to be circulated to the
investors/shareholders, etc., at least two weeks before the date of filing them with the
Registrar of Companies and regional stock exchanges. It has to ensure that all the
modifications and suggestions made by the SEBI regarding the above documents have
been duly incorporated.

 The merchant banker shall keep and maintain a copy of balance sheet at the end of each
accounting period, profit and loss account for that period, a copy of the auditor’s report on
the accounts for that period and a statement of financial position. It has to intimate to the
Board the place where the books of accounts, records and documents are maintained. Such
documents shall have to be preserved for a minimum period of 5 years.
 The merchant banker shall have to furnish to the Board half-yearly unaudited financial
results when required by the SEBI so that the farmer’s capital adequacy is monitored.
 The merchant banker is required to make disclosure of the following to the SEBI:

 Its responsibilities regarding the management of the issue.
 Any change in the information/particulars previously furnished with the SEBI having
a bearing on certificate of registration granted to it.
 Details regarding breach of capital adequacy norms.
 Names and addresses of the companies whose issues it has managed or has been
associated with.
 Information pertaining to its activities as manager, underwriter, consultant or
advisor to the issue.

3.3.2 Underwriters

A company intending to garner funds from the market is not certain about the availability of the
desired quantum of funds through subscription of securities. To ensure the certainty, some sort
of institutional arrangement needs to be made whereby the issuing company is given the
guarantee of purchase of all unsubscribed securities. This arrangement is akin to insurance that
provides protection against the failure of an issue of capital to the public. Such an insurance
arrangement to ensure success of the issue is termed as ‘underwriting’. Underwriters, therefore,
undertake the guarantee of buying the shares placed before the public in the event of
non-subscription of the securities. Thus, an issuing company has to enter into an agreement with
an underwriter who may be individual or institution for underwriting the issue. The obligation
of the underwriter as per the agreement arises when the event of non-subscription of issues by
the public takes place.

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