CS Professional · Strategic Management and Corporate Finance

Role of Intermediaries in Fund Raising: formula sheet

Full chapter guide

Key formulas

Statutory source: SEBI (Merchant Bankers) Regulations, 1992; Made under the SEBI Act, 1992. Registration with SEBI is mandatory to act as a merchant banker.
Lead manager's core duty: Due diligence + offer document filing + coordination of intermediaries; The lead manager certifies due diligence to SEBI and is responsible for disclosures in the offer document.
Activities of a merchant banker: Issue management, underwriting, portfolio management, corporate advisory, loan syndication; Write the activities in your own words and link each to the issue process.
Regulatory prohibition: No person to act as merchant banker without SEBI registration; Always begin an answer on registration with this rule.
Code of conduct: Integrity, fair dealing, due diligence, confidentiality, no misleading statements, conflict disclosure; The Regulations contain a Code of Conduct in a Schedule. Cover its themes, not word-for-word text.
Registrar to an issue (activity): RTI = collecting applications + processing + basis of allotment + allotment/refund + credit of securities; Work done in connection with a public or rights issue, up to listing steps.
Share transfer agent (activity): STA = maintaining records of holders + processing transfers, transmission, duplicates, dividend/interest payment; Ongoing work for the issuer after the issue.
Governing regulations: SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993; Registration with SEBI is mandatory to act as RTI or STA.
Core duties: Registration + code of conduct + records + SEBI inspection + investor grievance redressal; Use this as the skeleton of any duties answer.
Key distinction: RTI: issue-time, one-off | STA: post-issue, continuing; Same entity may hold both registrations.
Underwriting commission: Commission = Rate of commission × Issue price × Number of securities underwritten; Commission is paid on the amount underwritten, not only on the unsubscribed part. Maximum rate is a regulatory or Companies Act limit; check the current text before quoting a figure.
Underwriter's liability (standby/standard case): Shares to be taken up = Shares underwritten − Shares subscribed by the public against that underwriter's commitment; If the issue is fully subscribed, the underwriter takes up nothing. Liability is never negative.
Net unsubscribed shares: Unsubscribed shares = Shares offered − Shares applied for by the public; Used to compute the shortfall that underwriters must absorb when the shortfall is shared as per the agreement.
Firm underwriting position: Total shares taken = Firm shares + Liability after crediting the firm shares against the commitment; Treat the firm shares as applications received in the underwriter's favour. Liability = Commitment − (Firm shares + Marked applications + Share of unmarked applications), and it is never below zero. Do not add the firm shares again on top of this liability.
Trustee for debentures: Maturity > 18 months → debenture trustee must be appointed (Companies Act, 2013); Also state that the trustee must be registered with SEBI for public or listed issues. Quote the rule number from your study material.
Governing regulations: Trustees: SEBI (Debenture Trustees) Regulations, 1993 | CRAs: SEBI (Credit Rating Agencies) Regulations, 1999; Name the correct regulation with the correct intermediary. Mixing them loses marks.
Trustee's core duties: Security + Monitoring + Holder meetings + Enforcement on default; Use this four-part frame to structure any duties answer.
Rating requirement: Public or listed debt → rating from a SEBI-registered CRA; Disclose the rating and its rationale in the offer document.
Trust deed: Trust deed = terms, security, trustee powers, holder rights; It is the key document between issuer and trustee. Trustee cannot be excused from liability for negligence.
Depository structure: Investor (beneficial owner) → Depository Participant → Depository (NSDL / CDSL) → Issuer company; The DP is the investor's gateway. Investors have no direct account with the depository.
Ownership in demat form: Depository = registered owner; Investor = beneficial owner; Under Section 10 of the Depositories Act, the depository is deemed the registered owner only for the limited purpose of effecting transfer of ownership. It has no voting rights or other rights in respect of securities held by it. Those rights belong to the beneficial owner.
Key regulations: Depositories Act, 1996; SEBI (Depositories and Participants) Regulations, 2018; SEBI (Stock Brokers) Regulations, 1992; SEBI (Portfolio Managers) Regulations, 2020; Quote the correct name and the regulator (SEBI) in every answer.
Core duties of an intermediary: Registration with SEBI + Code of conduct + Segregation of client assets + Record keeping + Grievance redressal; Use this as a checklist when the question asks for obligations.
Portfolio management modes: Discretionary vs Non-discretionary vs Advisory; Discretionary: manager decides independently. Non-discretionary: acts on client's directions. Advisory: advises only.

Quick revision

A merchant banker manages the issue and must be registered with SEBI.
The lead manager coordinates due diligence, documents, marketing and the allotment process.
A registrar to an issue handles applications, allotment, refunds and credit of securities.
A share transfer agent maintains records of holders and processes transfers on behalf of the company.
An underwriter agrees to take up securities not subscribed by the public, up to its commitment.
A banker to an issue collects application money and handles refunds.
A debenture trustee acts for debenture holders and monitors security and compliance.
A credit rating agency gives an opinion on the credit risk of a debt instrument.
Depositories hold securities in electronic form through depository participants.
Stock brokers execute trades for investors on exchanges.
Investment advisers give advice for a fee and are regulated separately from brokers.
For every intermediary, remember the role, the regulator and the main duty.

Common mistakes

Treating merchant banker and investment banker as identical. Fix: Say merchant banker is the SEBI-registered category in India, while investment banker is a broader global term. Keep the point short and give an example of the work.
Saying the lead manager only markets the issue. Fix: State that the lead manager also carries out due diligence, prepares and files the offer document and is responsible for disclosures.
Treating RTI and STA as the same thing. Fix: State that they are separate activities: RTI deals with the issue, STA with continuing records and transfers.
Saying the company cannot do transfer work itself. Fix: Say the issuer may handle it in-house or appoint a registered STA, subject to the applicable regulatory conditions.
Treating underwriters and bankers to an issue as the same intermediary. Fix: Link underwriters with subscription risk and bankers with collection of money and refunds. Write this contrast in your first line.
Saying firm underwriting means the underwriter takes the whole issue. Fix: Firm underwriting means a fixed number of securities is bought irrespective of public response. It is not necessarily the whole issue.
Saying any person can act as a debenture trustee. Fix: State that a trustee must be a SEBI-registered entity, and that the SEBI regulations set eligibility.
Confusing the trustee's role with the rating agency's role. Fix: Trustee = protects holders and enforces security. CRA = gives an opinion on credit risk.
Saying investors hold their demat account directly with NSDL or CDSL. Fix: Write that the account is opened with a depository participant, which is the depository's agent.
Calling the depository the beneficial owner. Fix: Remember: depository is the registered owner; the investor is the beneficial owner.

Exam tips

Begin with the definition and the registration rule. It earns marks quickly in a written paper.
Use the pre-issue, issue and post-issue frame for functions questions.
For case questions, follow provision, analysis of facts, conclusion, and name the specific conduct breached.
Do not quote section numbers or numerical limits unless you are sure. Explain the principle instead.
For a difference question, write two or three clear points and one example, not a table.
Answer difference questions in bullet form with at least four points: timing, nature, scope, clients.
In case questions, structure as provision, facts, conclusion, then a practical step such as verifying the SEBI certificate.
Name the Regulations as the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 every time.