Strategic Management and Corporate Finance · Role of Intermediaries in Fund Raising

Merchant Bankers and Lead Managers in Public Issues

Updated 11 October 2026 · Fact-checked

A merchant banker is a SEBI-registered intermediary engaged in issue management, underwriting, portfolio management or advisory work. In a public issue, the lead manager is the merchant banker who manages the issue, does due diligence, files the offer document and coordinates other intermediaries. To answer questions, state role, registration, obligations and code of conduct.

Understand Merchant Bankers and Lead Managers

A company that wants to raise money from the public cannot do it alone. It needs an expert who knows the law, the market and the paperwork. That expert is the merchant banker. Under the SEBI (Merchant Bankers) Regulations, 1992, a merchant banker is a person engaged in the business of issue management, either by making arrangements for selling, buying or subscribing to securities, or by acting as manager, consultant, adviser or rendering corporate advisory services in relation to such issue management.

The lead manager is the merchant banker appointed by the issuer to manage a public issue. If an issue has several merchant bankers, one is the lead (book running lead manager in a book-built issue) and others are co-managers. The lead manager is answerable to SEBI for the quality of the offer document and for the due diligence done.

Merchant bankers must hold a certificate of registration from SEBI. Without it, nobody can act as a merchant banker or manage an issue. Registration depends on capital adequacy, infrastructure, experienced people and a fit and proper person test. The Regulations also lay down obligations, a code of conduct, inspection powers and action for defaults.

The typical functions in an issue are: advising on the type and size of the issue and its timing, appointing other intermediaries (registrar, bankers, underwriters, advertising agencies), preparing the draft offer document, carrying out due diligence, filing documents with SEBI and stock exchanges, marketing and roadshows, price discovery, and post-issue coordination up to allotment, refunds and listing.

Do not mix this with an investment banker. In India the term merchant banker is the regulated one. Investment banking is a broader, global term that covers advisory on mergers, trading and capital raising. Merchant banking in India has historically also stressed issue management and project advisory, and the SEBI registration applies only to the merchant banker.

Key rules to remember

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.

How to solve Merchant Bankers and Lead Managers questions

Use the same structure for any question on merchant bankers, whether it asks for a role, a list of obligations or a case on conduct.

1Read the question and mark the verb: explain, list, distinguish or analyse a case.
2Define a merchant banker in one or two lines and say registration with SEBI is mandatory.
3If the question mentions a public issue, identify the lead manager and state its position among other intermediaries.
4List the functions or obligations in a logical order: pre-issue, issue and post-issue.
5Link each point to the issue process, for example due diligence before filing the draft offer document.
6For a case, apply the rule to the facts: what did the banker do, which obligation or code of conduct point does it breach.
7Conclude with the consequence, such as SEBI inspection or action, or the practical compliance step.

Quickest way: Pre-issue, issue, post-issue frame

When to use it: Use it for any descriptive question on functions of a lead manager when time is short.

Write a one-line definition and the registration rule.
Pre-issue: advice on structure, appointing intermediaries, due diligence, draft offer document.
Issue: filing with SEBI and exchanges, marketing, price discovery, coordination.
Post-issue: allotment, refunds, listing, submission of reports.
Close with the code of conduct and accountability to SEBI.

Common mistakes in Merchant Bankers and Lead Managers

Treating merchant banker and investment banker as identical.
Both raise capital and the terms are used loosely in textbooks.
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.
Students focus on advertising and roadshows.
Fix: State that the lead manager also carries out due diligence, prepares and files the offer document and is responsible for disclosures.
Forgetting that registration is mandatory.
Students jump straight to functions.
Fix: Open every answer with the rule that no one can act as a merchant banker without a SEBI certificate.
Quoting regulation numbers, capital figures or fees from memory.
Students try to look precise.
Fix: Write only what you are certain of. Explain the criteria, such as capital adequacy, infrastructure, experience and fit and proper status, in words.
Listing the code of conduct as a few vague words like honesty.
Students do not connect it to practice.
Fix: Give themes with an application, for example disclosing a conflict of interest to the client or not making misleading statements in the offer document.
Confusing the lead manager with underwriters or registrars.
All are intermediaries in the same issue.
Fix: Remember the lead manager coordinates the others. The underwriter commits to take up unsubscribed shares and the registrar handles applications and allotment records.

Worked examples

Example 1

Explain the role of a lead manager in a public issue of a company. (Write a model answer.)

Show the solution

Define: a lead manager is a SEBI-registered merchant banker appointed by the issuer to manage the public issue.
Pre-issue: advises on the type of security, size, timing and structure, and helps appoint intermediaries such as the registrar, bankers to the issue and underwriters.
Due diligence: examines the issuer's business, financials and legal compliance and gives due diligence certificates to SEBI.
Offer document: prepares the draft offer document, files it with SEBI and stock exchanges and handles SEBI's observations.
Issue stage: manages marketing, roadshows and price discovery, and coordinates the intermediaries. In a book-built issue the lead is the book running lead manager.
Post-issue: oversees allotment, refunds and listing, and monitors the issue through to completion.
Accountability: the lead manager answers to SEBI for the accuracy of disclosures.

Answer: The lead manager is the registered merchant banker who plans, documents, markets and coordinates the public issue, and is accountable to SEBI for due diligence and disclosures.

Example 2

Alpha Infra Ltd plans an IPO. Its CFO says the company can appoint any consultant as lead manager if the fee is low. Advise the company.

Show the solution

Rule: only a merchant banker holding a SEBI certificate of registration can manage a public issue.
Facts: the CFO is choosing on fee alone and does not mention registration.
Analysis: an unregistered consultant cannot lawfully act as lead manager, and the offer document would not be accepted for processing.
Practical point: check the banker's valid registration, its category, its record with SEBI, past issue experience and any conflict of interest with Alpha Infra Ltd.
Code of conduct: the banker must disclose conflicts and act with integrity, and Alpha must give accurate information for due diligence.
Conclusion: the CFO's approach is wrong.

Answer: Alpha Infra Ltd must appoint a SEBI-registered merchant banker as lead manager. Fee alone cannot be the basis. It should verify registration, experience and conflicts before appointment.

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.

Practice questions from Role of Intermediaries in Fund Raising

Merchant Bankers and Lead Managers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveMerchant Bankers and Underwriters

Merchant Bankers and Lead Managers: frequently asked questions

What is the role of a merchant banker in a public issue?

A merchant banker manages the issue from planning to listing. It advises on structure and pricing, does due diligence, files the offer document and coordinates other intermediaries. It is accountable to SEBI for the disclosures.

Is registration with SEBI compulsory for merchant bankers?

Yes. The SEBI (Merchant Bankers) Regulations, 1992 require a certificate of registration before a person can act as a merchant banker. Registration depends on factors such as capital adequacy, infrastructure, experienced staff and being a fit and proper person.

What is the difference between a merchant banker and an investment banker?

Merchant banker is the term regulated by SEBI in India and is closely tied to issue management and advisory work. Investment banker is a broader, international term covering capital raising, mergers advice and trading. In answers, mention the Indian registration point.

What does a lead manager do in an IPO?

It prepares and files the draft offer document, carries out due diligence, coordinates the registrar, bankers and underwriters, manages marketing and price discovery, and oversees allotment and listing.