Intermediaries in an Issue in the Primary Market

The primary market is where companies and governments issue securities, such as Shares, and Bonds, for the first time, and sell them directly to investors. The primary market is also known as the new issues market. The primary market is where companies offer their shares for the first time to the general public, the offer period is known as an initial public offering (IPO), after which the shares are generally traded in the secondary market daily.

 Section 11 and section 12 of the SEBI Act, 1992 define an Intermediary. Stockbrokers, sub-brokers, portfolio managers, depositories, investment advisers, share transfer agents, merchant bankers, underwriters, registrars to an issue, foreign institutional investors, custodians of securities, venture capital funds, mutual funds, asset management companies, credit rating agencies, those in connection and associated with the securities market in any manner, are all broadly categorised as ‘Intermediaries of SEBI’.

Intermediaries in an issue in the primary market that facilitate initial public offering are Bankers to an issue, Registrars to an issue, and Share Transfer agents, Depositories,  Merchant bankers, underwriters, Debenture Trustees, and credit rating agencies.

Bankers to an Issue:

Scheduled Commercial Banks acting as bankers to an issue are required to be registered with SEBI in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down eligibility criteria for bankers to issue and require registrants to meet periodic reporting requirements. Part III gives further details of the registration of bankers to an issue.

Registrars to an Issue and Share Transfer Agents:

Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Any primary market issue has registrars (registered with SEBI) to take care of activities such as collecting investor applications, and keeping a record of these applications. Registrars also keep a record of money received from investors or money paid to sellers of shares and assist companies in determining the allotment of shares by consulting stock exchanges.

Under SEBI regulations, category I – is to act as both registrars to the issue and share transfer agent, and category II – is to act as either registrar to an issue or share transfer agent.

Depositories:

A depository is an organization that holds securities (like shares, debentures, bonds, government securities, mutual fund units, etc.) of investors in electronic form at the request of the investors through a registered depository participant. It also provides services related to transactions in securities.

The National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are two prominent depositories in India that act as intermediaries in the securities market.

Merchant Bankers:

As per SEBI (Merchant Bankers) Regulation), 1992, Merchant bankers have a central role in the procedure of issue management. Lead managers have to confirm the perfection of the material supplied in the offer document.

Underwriter:

As per SEBI (Underwriters) Rules and Regulations, 1993, Underwriters play an important role at the time of listing any new companies because they agree to buy all the securities if the share issue is not fully subscribed. They make sure that the share issue is fully subscribed by themselves or by others. Underwriters are appointed by the companies in consultation with merchant bankers. Additionally, all SEBI-registered merchant bankers of defined categories, stockbrokers, and mutual funds can also play the role of underwriters.

Debenture Trustees

As per SEBI (Debenture Trustees) Rules and Regulations, 1993, it shall apply to debenture trustees to be registered with SEBI. Their active role is in ensuring the amenability by the issuers with the norms of the deed about the debenture trust, creation of the security, reimbursement of interest, debenture redemption, handling of grievances of debenture holders w.r.t interest/redemption proceeds not received on payable dates.

Credit Rating Agencies:

SEBI (Credit Rating Agencies) Regulations, 1999 define a “credit rating agency” as a body corporate that is engaged in or proposes to be engaged in, the business of rating securities that are listed or proposed to be listed on a stock exchange recognized by the SEBI.