NISM Series IX (Merchant Banking) common mistakes
NISM Series IX (Merchant Banking) · Understand the traps and how to avoid them.
Treating the pre-issue and post-issue shareholding thresholds for a mandatory open offer as fixed percentages memorised in isolation, rather than recalling that the trigger is 25% voting rights (acquisition) and the offer size is at least 26% of the target's voting capital, and confusing these with the delisting threshold of 90%.
Candidates cram SEBI SAST numbers late and the 25/26/90 figures blur together; the exam deliberately places them as near-miss distractors in the same question.
What to do instead
Build a one-page numeric map: SAST trigger 25%, open offer minimum 26%, creeping acquisition 5% per financial year, delisting 90%. Write the regulation name next to each number and test yourself by covering the numbers, not the labels.
Confusing the roles of the lead manager, the registrar to the issue, and the underwriter, and answering 'who is responsible for allotment and refunds' with the merchant banker instead of the registrar.
The functions overlap in practice during a book-built issue, and candidates learn the IPO process as a single narrative rather than as a division of duties.
What to do instead
For each IPO activity (due diligence, drafting the offer document, bidding collection, basis of allotment, refund dispatch, listing application) write the accountable intermediary in a table and revise it before every mock.
Assuming any company can act as a merchant banker if it has capital, ignoring the SEBI (Merchant Bankers) Regulations requirement of a certificate of registration, net worth of at least Rs. 5 crore for a body corporate, and the two-day professional qualification/experience criteria for principal officers.
Candidates conflate merchant banking with investment banking advisory, which is not separately licensed in the same way, and skip the registration chapter as 'administrative'.
What to do instead
Memorise the eligibility grid: applicant type (body corporate, partnership firm, LLP), net worth or capital requirement, principal officer experience, and the fee/registration validity. Practise questions framed as 'which applicant is eligible'.
Mixing up the primary market instruments and processes: answering that a rights issue needs SEBI approval, that a preferential allotment follows the book-building route, or that an SME IPO uses the main board disclosure norms.
The chapters on issue management list many routes (public issue, rights, preferential, QIP, SME) and candidates memorise definitions without mapping each route to its regulator approval, pricing basis, and disclosure document.
What to do instead
Create a comparison matrix across routes with columns: governing regulation, offer document type, pricing freedom, lock-in, and whether SEBI approval or only filing is needed. Fill it from the regulation text, then answer route-identification questions.
Applying the wrong lock-in or minimum public shareholding rule, for example stating promoters must hold at least 20% post-issue or that minimum public shareholding is 25% for all listed companies including those with a lower threshold under special rules.
The 25% minimum public shareholding rule has exceptions and the promoter contribution/lock-in rules changed over time, so older study notes and memory produce outdated answers.
What to do instead
Anchor on the current rule set: minimum promoter contribution of 20% of post-issue capital, promoter lock-in of 18 months for the minimum contribution and 6 months for excess, and minimum public shareholding of 25% with the notified exceptions. Note the date of the rule you are using.
Treating 'due diligence' as a generic good-faith statement and failing to identify the specific certificate the lead merchant banker must give to SEBI about the veracity of the offer document and the adequacy of disclosures.
The due diligence chapter is written in regulatory prose and candidates skim it, so they cannot distinguish the due diligence certificate from the auditor's certificate or the CA certificate on proceeds.
What to do instead
List every certificate in an issue (due diligence, auditor's report on financials, CA certificate on use of proceeds, undertaking on refunds) with who signs it and to whom it is addressed. Learn the standard format headings.
Confusing the functions of SEBI with those of the stock exchanges and RBI when answering 'who approves the offer document' or 'who grants listing permission', and answering that SEBI grants listing.
Candidates learn the capital market structure as a list of institutions without the workflow of an issue, so the handoffs between SEBI, exchanges, depositories and RBI are unclear.
What to do instead
Draw the IPO approval flow as a sequence: merchant banker files with SEBI and exchanges, SEBI observations, exchange in-principle listing approval, allotment, listing. Label which body does what at each arrow and revise the diagram, not the list.
Answering ethics questions by choosing the option that maximises client benefit or deal success, rather than the option that requires disclosure, avoidance of conflict of interest, or refusal of the mandate.
Candidates apply commercial intuition to scenario questions, and the ethical answer often costs the merchant banker the fee, so the 'obvious' business answer is wrong.
What to do instead
For every ethics scenario, apply a fixed test: is there a conflict, has it been disclosed, is the information confidential, and is the client being misled. Choose the option that satisfies all four, even when it delays the issue.
Confusing merchant banking with other SEBI-registered intermediary categories (portfolio manager, underwriter, debenture trustee, registered investment adviser) and attributing their obligations, such as managing client portfolios or acting as trustee, to the merchant banker.
The registration chapters list many intermediaries with overlapping capital and conduct requirements, and candidates memorise the list without the distinguishing activity.
What to do instead
Write a one-line definition of the permitted activity for each intermediary category and a note on which activities a merchant banker may additionally undertake only with separate registration. Test with 'which activity requires which registration' items.
Ignoring the arithmetic in issue-management questions: miscomputing the minimum subscription, the number of shares in the net offer to the public after adjusting reservations, or the price band midpoint, and then selecting an answer that matches a wrong calculation.
Candidates focus on definitions and skip numerical practice, and the exam includes computation items where a plausible distractor matches a common arithmetic slip.
What to do instead
Practise a fixed set of calculations weekly: net offer to public (total issue minus reservations), minimum subscription (90% of the issue), allotment ratios on oversubscription, and refund interest for delay. Show every step and check the units.