Other Merchant Banking Services and Ethics
This domain covers the advisory and transaction services sold alongside issue management, and the conduct standards the regulator expects when those services create conflicts.
Service lines
- Underwriting: a commitment to subscribe to the unsubscribed portion; unsold shares devolve on the underwriter.
- Takeover advisory under SEBI (SAST) 2011: crossing 25% of voting rights triggers an open offer for at least 26%; between 25% and 75%, creeping acquisition of up to 5% per financial year needs no offer.
- Buyback under the Companies Act, 2013 and SEBI Buyback Regulations, 2018 - tender offer, open market or book-building, capped at 25% of paid-up capital plus free reserves.
- Delisting under SEBI Delisting Regulations, 2021 - reverse book building discovers the exit price.
- Advisory: M&A, valuation, debt syndication, project finance, ESOP design, escrow management, due diligence.
Ethics that are tested
Fiduciary duty to issuer and market; written conflict-of-interest policies; Chinese walls between advisory teams and any dealing desk; no front-running or use of unpublished price-sensitive information under the 2015 insider trading rules; confidential treatment of client data; honest marketing without exaggerated claims; gift and hospitality controls; KYC and anti-money-laundering checks.
Worked example
An acquirer holds 24.8% and buys 0.5% on-exchange. It now holds 25.3%: the 25% threshold has been crossed, so a mandatory open offer for at least 26% of the voting capital is triggered, however small the triggering purchase. Had it already held 25.3% and bought 4% more, no offer would follow, because creeping acquisition within 25–75% may add up to 5% per financial year.
Traps
- Reading the 25% trigger as 25% of total share capital rather than voting rights.
- Assuming a 20% open offer.
- Treating underwriting as marketing rather than a financial commitment.
- Ignoring the conflict when advisory and underwriting roles sit in the same firm.