Page 265 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes 14.6 Regulations on Merchant Banking and Other Intermediaries

There are several intermediaries associated with management of public and rights issue of
capital. While the Merchant Banker is the main intermediary, others associated with the issue
management are Underwriter, Brokers, Market makers, Registrar, Advisors, Collection Bankers,
Advertisement Consultants, Debenture Trustees and Credit Rating Agencies. The SEBI has issued
a detailed guideline/ regulation on many of these intermediaries. They are:
(a) SEBI (Merchant Banker) Regulation, 1992;

(b) SEBI Rules for Underwriters.
Exhibit 14.2: A Bird’s-eye View of Regulation on Financial Services

Banking Regulation Insurance Act, 1938 Securities Contracts Act, 1949 (Regulation) Act, 1956
Companies Act, 1956
Indian Trust Act, 1882
Reserve Bank of India Insurance Regulatory Securities and Authority Exchange Board of India
Notifications, Rules, Regulations, Guidelines, Directions, etc. Clarifications, etc.
a) SEBI (Brokers and Sub-brokers) Regulation, 1992;
b) SEBI Rules for Registrar to an Issue and Share Transfer Agents, 1993;
c) SEBI (Bankers to an Issue) Regulations, 1994;
d) SEBI (Debenture Trustees) Regulations, 1993;
e) Code of Advertisement to Capital Offerings

The intermediaries are required to register themselves with the SEBI under the relevant
regulations before commencing the business. These regulations have also prescribed the
eligibility norms for registration, net worth and capital adequacy norm wherever relevant and
code of conduct. As observed in other regulations, these regulations also empower the SEBI to
inspect the books and record and conduct investigation on the affairs of the intermediaries and
take appropriate action against them wherever required.
The SEBI relies on the merchant bankers most, when it comes to supervising the equity and debt
offerings of companies. The Merchant Banker who acts as a lead manager to an issue is expected
to examine whether all the provisions relating to SEBI by the company as well as other
intermediaries are duly complied with and issue a due-diligence certificate to that effect. SEBI
Guidelines for Disclosure and Investor Protection, 1992 which frames the rules relating to issue
of capital is also relevant to the merchant bankers. If a Merchant Banker offers its service to an
acquirer, the SEBI (Substantial Acquisition of Shares and Take-overs) Regulations, 1994 provides
the procedure to be followed by the acquirer and the merchant banker for such acquisition of
shares.

14.7 Ethical Issues in Financial Planning

There have been many scams and cases such as collapse of Enron and Worldcom which have
brought ethical concerns to the forefront of public scrutiny. These cases resulted in employees to
lose all of their retirement savings, and provided a wake-up call to investors across the country
who held their entire retirement savings in a single stock. The failure to educate those employees
about the importance of diversification was perhaps more than mere corporate or fiduciary
oversight.
These headline-grabbing collapses are just two examples of how our modern maze of business
models, methods of practice and investment strategies has substantially blurred traditional

260 LOVELY PROFESSIONAL UNIVERSITY