Hoping that the ‘Role of Intermediaries-1 ’ made you aware of the roles the major market intermediaries play in the securities market, we are here to introduce you to the other financial intermediaries associated with the securities market.
Why do you need to know about financial intermediaries?
Investment in the securities market has witnessed a rise in the past few years. The ease of access and the seamless process has made new investors enter into the securities market. Behind the seamless process are several market institutions that make it happen and ensure the credibility and safety of the securities market. As an investor, you should be aware of these institutions.
Also, along with the rise in the number of investors, there is a rise in the unsolicited messages and calls to the investors by fraudsters in the names of various market institutions. So, you must be aware of the market institutions associated with the securities market, their roles, and those recognized by SEBI to recognize any trickery in the name of these market institutions and verify the authenticity of the same.
The financial intermediaries we are discussing in this article are,
Bankers to an Issue
Registrar to an Issue and Share Transfer Agents
Note: “Issue” in this article means an offer of sale or purchase of securities (shares, debentures, bonds, preference share, etc.)
By any corporate or any person or group of persons on his or its or their behalf,
To or from the public, or the holders of securities of such body corporate or person or group of persons
If we have to put it in simple terms, the issue can be an IPO, FPO, Rights issue, and so on.
Merchant Bankers play an important role in issue management i.e, from due diligence aspect to allotment/refund of the securities. Merchant Bankers either make arrangements regarding selling, buying, or subscribing to securities or act as managers, consultants, advisers, or rendering corporate advisory services concerning issue management.
They are responsible,
To ensure the correctness of information furnished in the offer document
To ensure compliance Guidelines of Disclosure and Investor Protection and all other SEBI rules and regulations concerning the offer
They are regulated by SEBI (Merchant Bankers) regulation, 1992.
Underwriters are parties that evaluate and assume other parties’ risk of payment.
In the securities market, underwriting determines the risk and price of a particular security. Underwriting is most commonly seen during IPO, FPO, and rights issues where underwriters first buy securities of the issuing entity and then sell them in the market. They will charge underwriting fees for the same to the issuer company.
Underwriters make sure that if the issue is not fully subscribed, they will take the responsibility of buying the remaining shares.
Investors benefit a lot from the underwriting process as the information provided by an underwriting agency can help them make an informed buying decision. Click here to know more about the underwriting process.
Underwriters are regulated by SEBI (Underwriters) Rules and Regulations, 1993.
Bankers to an issue
Scheduled banks act as a banker to any issue. They perform any or all of the following activities:
Acceptance of application and application money
Acceptance of allotment or call monies
Refund of application money
Payment of dividend or interest warrants
Bankers to an issue are regulated by SEBI (Bankers to an Issue) Regulations, 1994.
Click here to find the list of SEBI recognized Bankers to an issue.
The investment choice of every investor is guided by his income, tax bracket, risk tolerance, and various other factors. It is the role of the Portfolio Manager to come up with a suitable investment solution for clients considering the various factors. Also, a portfolio manager enters into a contract or arrangement with a client, advises or directs, or undertakes on behalf of the client the management or administration of a portfolio of securities, or the funds of the client.
Such a huge responsibility cannot be carried out by every other person. So, SEBI has SEBI (Portfolio Managers) Rules and Regulations, 1993 to recognize and regulate the Portfolio Managers. Click here to find the list of registered Portfolio managers with SEBI.
Debenture trustees are formed to protect the interests of the debenture holders. They act as a liaison between the issuer company and debenture holders by holding the assets/securities/collateral on which the debt has been raised by the issuer company.
As per the Companies Act, 2013, it is mandatory for a company intending to issue debentures/bonds with a maturity period of more than 18 months to appoint a full-time Debenture Trustee, regardless of whether debentures/bonds are fully secured or not.
Such Debenture trustees shall be registered with SEBI under SEBI ( Debenture Trustees) Rules and Regulations, 1993. Click here to see the list of debenture trustees registered with SEBI.
Registrars to an Issue and Share Transfer Agents
A Registrar to an Issue is an institution or trust that maintains the records for each issue of the security for the issuer company. It holds all the necessary details of the investors.
A share transfer agent’s function is to issue and cancel certificates to reflect changes in ownership of the securities of an entity on behalf of the company.
SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993 governs the registration and regulation of registrar to an Issue and Share Transfer Agents. Click here to find the list of SEBI registered Registrars to an Issue and Share Transfer Agents.
The above market intermediaries are together responsible for the efficient, robust, and secure market eco-system. The credibility of the securities market is ensured by these institutions.
Henceforth, SEBI has rules and regulations in place for the registration, functioning, and governance of these institutions to ascertain the reliability of the securities market.
Now that you know the roles of these institutions in the securities market, we also suggest you verify the authenticity of any institution you are associated with for investments in the securities market by checking for its SEBI recognition here. Make sure you are certain about the trustworthiness of the institution you are dealing with before putting your money into the hands of the unknown.