Lead Manager

A lead manager is the merchant banker appointed by the issuer company to carry out the entire IPO process. A lead manager is also known as the Book Running Lead Manager (BRLM).

A merchant banker is a SEBI registered financial institution that assists the corporates with financial solutions like helping in fundraising, providing consultancy services, acting as underwriters, and much more.

A company can appoint one or more than one merchant bankers, of whom one acts as the lead manager. The lead manager plays a very crucial role in an IPO as the lead manager is responsible for the entire IPO process.

Lead manager's pre IPO activities includes Drafting and design of Offer documents, Prospectus, statutory advertisements and memorandum. Also they draws up the various marketing strategies for the issue. The post issue activities of lead manager includes coordinate non-institutional allocation, intimation of allocation and dispatch of refunds to bidders, management of escrow accounts etc.

Types of Merchant Bankers

Merchant bankers are classified into four categories by SEBI.

1. Category I Merchant Banker

   Only a category I merchant banker can provide issue management services such as:

   • Preparation of Prospectus
   • Drafting issue structure
   • Determining the financial structure
   • Final allotment of securities

   In addition to the above, a Category I merchant banker can also act as an advisor, consultant, manager, underwriter, or portfolio manager.

2. Category II Merchant Banker

   A Category II merchant banker can offer advisory, consultancy, portfolio management, and underwriting services to companies. A merchant banker under this category can act as a co-manager but not as an issue manager.

3. Category III Merchant Banker

   A Category III merchant banker can act as an issue's underwriter only. They cannot act as issue managers or portfolio managers.

4. Category IV Merchant Banker

   A Category IV merchant banker can only act as an advisor or consultant on an issue.

Merchant banker eligibility

An applicant needs to qualify the below mentioned criteria to become a SEBI registered merchant banker. The following are the requirements for becoming a merchant banker, and applicants can download the application form, if they want to submit one.

1. The applicant has to pay a non-refundable application fee of Rs 50,000 to SEBI.
2. The applicant should be a corporate body other than a non-banking financial company.
3. As per the Reserve Bank of India regulations, a merchant banker can register as a primary or satellite dealer and the applicant should not engage in activity such as accepting or holding public deposits.
4. The applicant has the necessary resources, including enough office space, tools, and personnel, to carry out his activities successfully.
5. The applicant should employ at least two individuals with the necessary skills to operate a merchant bank.
6. There should not be any securities-related lawsuits involving the applicant, his partner, directors, or principal officers that would have a negative impact on the applicant's business.
7. The applicant, his director, partner, or principal officer, should never have been found guilty of an offense involving moral turpitude or an economic offense.
8. The applicant must hold a professional degree in finance, law, or business management from an organization recognized by the government.
9. The minimum net worth required to meet the capital adequacy standard should be five crore rupees.

Code of conduct for Merchant Bankers

• A merchant banker has a duty to safeguard investors' interests at all costs.
• A merchant banker should make sure that investor questions are answered fully and that their complaints and grievances are promptly and effectively addressed.
• A merchant banker must always take reasonable precautions, ensure proper handling, and use independent professional judgment.
• A merchant banker should not discriminate against any of its clients, aside from in cases of moral and business matters.
• Merchant bankers should not give any of their clients false information about their own services.
• A merchant banker should avoid conflicts of interest and disclose their interests fully.
• Investors should be notified if a merchant banker's registration status changes or their financial situation changes.
• Any employee of a merchant banker or the merchant banker itself may not directly or indirectly provide investment advice regarding any security in any publicly accessible media, whether in real-time or not.
• A merchant banker must make sure that senior management, especially decision-makers, has access to all pertinent information.
• A merchant banker should not create a false market or price rigging or manipulation.
• If a merchant banker is acting as an underwriter, then they should not make any statement which would misrepresent the services the merchant banker is performing and the underwriting commitment details.

Merchant Banker Fees for IPO

Merchant bankers charge a certain fee for their services as well as a commission on the underwriting of the shares. The following are the fees that merchant bankers charge:

1. A merchant banker can charge
2. Project appraisal fees.
3. Brokerage commission percentage.
4. Underwriting commission.

Answered on 2023-02-02