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Capital Market of India - Role of SEBI Registered Intermediaries - Underwriters
Eligibility criteria, Procedure for registration and operational guidelines are covered under SEBI (Underwriters) Rules, 1993 and SEBI (Underwriters) Regulations 1993. The words "underwriting" and "Underwriter" are defined in the aforesaid Rules as under.
"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.
"underwriter" means a person, who engages in the business of underwriting of an issue of securities of a body corporate;
Rule 3(1) of the aforesaid Rules makes Registration with the SEBI compulsory. To quote the said Rule- "No person shall act as underwriter unless he holds a certificate granted by the Board under the regulations".
Conditions for Registration (Rule 4)
The Board may grant or renew a certificate to an underwriter subject to the following conditions namely;
in case of any change in the status and constitution, the underwriter shall obtain prior permission of the Board to continue to act as underwriter;
without prejudice to the obligations under any other, the underwriter shall enter into a valid agreement with the body corporate on whose behalf he is acting as underwriter and the said agreement amongst other things may define the allocation of duties and responsibilities between him and such body corporate and;
he shall pay the amount of fees of registration in the manner provided in the regulations;
he shall abide by the rules and regulations made under the Act in respect of the activities carried on by him as an underwriter.
Consideration of Application/Eligibility Criteria (Regulation 6)
The Board shall take into account for considering the grant of a certificate, all matters which are relevant to or relating to underwriting and in particular the following, namely, whether the applicant
has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities;
has any past experience in 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;
Explanation :- For the purposes of this clause the Board shall take into account 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 under the Act or any of the Rules or any of the Regulations made under the Act
fulfils the capital adequacy requirements specified in regulation 7 ;
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."
Capital Adequacy Requirement (Regulation 7)
The capital adequacy requirement referred to in sub- regulation (d) of regulation 6 shall not be less than the networth of rupees twenty lakhs;
Notwithstanding anything contained in sub-regulation (1),-
every stock broker, who acts as an underwriter shall fulfil the capital adequacy requirements specified by the stock exchange of which he is a member;
every merchant banker, who acts as an underwriter shall fulfil the capital adequacy requirements specified in regulation 7 of the Securities and Exchange Board of India (Merchant Banker) Regulations 1992.
General Obligations and Responsibilities
Every underwriter shall at all times abide by the Code of Conduct as specified in Schedule III.(Regulation 13)
Every underwriter shall enter into an agreement referred to in clause (b) of rule 4 with each body corporate on whose behalf he is acting as underwriter and the said agreement shall, amongst other things, provide for the following, namely :- (Regulation 14)
the period for which the agreement shall be in force;
the amount of underwriting obligations;
the period, within which the underwriter has to subscribe to the issue after being intimated 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 of an Underwriter (Regulation 15 to 17)
Regulation 15
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 referred to in clause (b) of rule 4 shall not exceed twenty times the networth referred to in regulation 7.
Every underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement referred to in clause (b) of rule 4 shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.
To Maintain Proper Books of Accounts and Records, etc. (Regulation 16)
Subject to the provisions of any other law, every underwriter shall keep and maintain the following books of accounts and documents, namely :-
in relation to underwriter being a body corporate -
a copy of the balance sheet and profit and loss account as specified in sections 211 and 212 of the Companies Act, 1956 (1 of 1956);
a copy of the auditor's report referred to in section 227 of the Companies Act, 1956 (1 of 1956).
in relation to an underwriter not being a body corporate -
records in respect of all sums of money received and expended by them and the matters in respect of which the receipt and expenditure take place; and
their assets and liabilities.
Without prejudice to sub-regulation (1), every underwriter shall, after the close of each financial year as soon as possible but not later than six months from the close of the said period furnish to the Board if so required copies of the balance sheet, profit and loss account, statement of capital adequacy requirement and such other documents as may be required by the Board under regulation 16 .
Every underwriter shall also maintain the following records with respect to -
details of all agreements referred to in clause (b) of rule 4;
total amount of securities of each body corporate subscribed to in pursuance of an agreement referred to in clause (b) of rule 4;
statement of capital adequacy requirements as specified in regulation 7 ;
such other records as may be specified by the Board for underwriting.
Every underwriter shall intimate to the Board the place where the books of accounts, records and documents are maintained.
Every underwriter shall preserve the books of account and other records and documents mentioned under this chapter for a minimum period of five years.(Regulation 17)
Appointment of Compliance Officer (Regulation 17A)
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 the Board any non-compliance observed by him
Power to Call for Information (Regulation 18)
The Board 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 for under sub-regulation (1) it shall be the duty of the underwriter to furnish such information.
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