Issue Management Intermediaries

Meaning

When a company raises funds from the primary market (through IPO – Initial Public Offering, FPO – Follow-on Public Offering, Rights Issue, or Private Placement), it cannot directly approach the public. It requires the services of various intermediaries who act as a link between the issuer (company) and the investors (public).

These intermediaries ensure that the issue is carried out in a transparent, efficient, and legally compliant manner under the supervision of SEBI.

Key Issue Management Intermediaries

1. Merchant Bankers / Lead Managers

• Act as the main coordinator of the issue.

• Responsible for drafting the prospectus, obtaining SEBI approval, appointing other intermediaries, pricing the issue, and ensuring compliance.

• Example: ICICI Securities, SBI Capital Markets, Axis Capital.

2. Underwriters

• Provide a guarantee that if the public does not subscribe fully, they will purchase the unsubscribed portion.

• They reduce the risk of undersubscription.

• Example: Insurance companies, investment banks often act as underwriters.

3. Registrars to the Issue

• Handle the application process and maintain investor records.

• Duties include:

  • Collecting applications from investors.

  • Keeping track of allotments.

  • Dispatching refund orders and share certificates/crediting demat accounts.

• Example: KFin Technologies, Link Intime India.

4. Bankers to the Issue

• Provide banking services for collecting application money.

• Accept applications with cheques/drafts, transfer funds to issuer’s account, and refund money if oversubscription happens.

• Example: SBI, HDFC Bank, ICICI Bank, Axis Bank.

5. Brokers to the Issue

• Appointed to market the securities and encourage investors to subscribe.

• They create awareness among retail and institutional investors.

• Example: Stockbrokers registered with SEBI and stock exchanges.

6. Debenture Trustees (in case of debt issue)

• Protect the interest of debenture holders.

• Ensure the company follows the terms of debenture trust deed.

• Take action if company defaults.

• Example: IDBI Trusteeship, Axis Trustee Services.

7. Advertising and PR Agencies

• Design advertisements, roadshows, investor awareness campaigns.

• Help in attracting retail investors through mass communication.

8. Depositories (NSDL & CDSL)

• Ensure securities are issued in demat form and credited to investors’ accounts.

• Facilitate electronic transfer of securities.

9. Credit Rating Agencies (for debt issues)

• Provide a rating (e.g., AAA, AA) to debt instruments like bonds and debentures.

• Helps investors assess the risk of the issue.

• Example: CRISIL, ICRA, CARE Ratings.

Importance of Intermediaries in Issue Management

• Ensures compliance with SEBI and Companies Act.

• Builds investor confidence through professional management.

• Reduces risks of fraud, default, or mismanagement.

• Efficient allocation of funds to the company.

• Transparency in the fund-raising process.

Flow of Work in Issue Management

1. Issuer (Company) → appoints Merchant Banker (Lead Manager).

2. Lead Manager → appoints Registrars, Bankers, Brokers, Underwriters.

3. SEBI Approval obtained for prospectus.

4. Credit Rating (if debt issue).

5. Marketing Campaign → by brokers & PR agencies.

6. Investors apply → money collected by Bankers.

7. Registrars process allotment/refunds.

8. Securities credited in Demat form via Depositories.

Issue Management Intermediaries are the support system of the primary market. They connect issuers with investors and ensure the entire process is smooth, transparent, and regulated.

Meaning

Merchant Banking refers to financial institutions or banks that provide specialized services such as issue management, portfolio management, underwriting, loan syndication, mergers & acquisitions advisory, and corporate restructuring.
Unlike commercial banks, which primarily focus on deposit-taking and lending, merchant banks deal with corporate financing and advisory services.

In India, Merchant Banking is governed by the Securities and Exchange Board of India (SEBI).

A Merchant Bank is a financial institution that provides specialized services to business firms and corporate clients such as:

• Issue management (IPOs, FPOs, rights issue)

• Underwriting of shares and debentures

• Loan syndication

• Mergers & acquisitions advisory

• Corporate restructuring

• Portfolio management

Unlike commercial banks (which mainly take deposits and give loans), merchant banks do not deal with general public banking services.
They focus mainly on corporate finance and capital market activities.

In India, merchant banking activities are regulated by SEBI.

Definitions of Merchant Banking

According to SEBI (1992):

“A Merchant Banker means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying, or subscribing to securities as a manager, consultant, adviser, or rendering corporate advisory services in relation to such issue management.”

According to R. P. Rustagi:

“Merchant Banking is a service-oriented industry providing specialized services to corporate clients in financial, marketing, managerial, and legal matters.”

According to N. S. Bose:

“Merchant Banking is a skill-oriented professional service provided to corporate and entrepreneurs, involving issue management, project counseling, corporate restructuring, loan syndication, and portfolio management.”

According to J. C. Verma:

“Merchant Banking is a financial service that combines banking skills with marketing and management skills to provide service to corporate enterprises.”

Key Features of Merchant Banking

• Specialized in corporate finance.

• Provides advisory and consultancy services.

• Plays a key role in capital market development.

• Regulated by SEBI in India.

• Helps in entrepreneurial growth and industrial development.

A Merchant Bank is a financial institution that provides expert services to corporate clients for raising funds, managing issues of securities, underwriting, and giving advisory services in areas like mergers, acquisitions, and restructuring

Functions of Merchant Banking

1. Issue Management

   • Helping companies raise funds through public issues, rights issues, or private placements.

   • Managing the entire process: drafting prospectus, obtaining approvals, marketing, and allotment.

2. Underwriting of Securities

   • Providing assurance to companies by underwriting their shares and debentures in case of undersubscription.

3. Corporate Advisory Services

   • Assisting in mergers, acquisitions, joint ventures, foreign collaborations, and restructuring.

4. Loan Syndication

   • Arranging large loans by forming a consortium of banks and financial institutions.

5. Portfolio Management Services (PMS)

   • Managing investments of high-net-worth individuals (HNIs) or institutions.

6. Project Counseling

   • Advising companies on project planning, financing, and feasibility analysis.

7. International Finance Services

   • Helping companies raise capital from international markets via Euro issues, ADRs, GDRs, FCCBs etc.

Importance of Merchant Banking

• Capital Market Development – Helps companies raise long-term finance.

• Efficient Resource Allocation – Guides investors toward profitable ventures.

• Boost to Entrepreneurship – Assists new businesses with financial structuring.

• Investor Protection – Ensures transparency in issue management as per SEBI guidelines.

• Global Integration – Facilitates access to foreign capital and collaborations.

Merchant Banking in India

• Introduced in India in 1969 by Grindlays Bank.

• SBI was the first Indian bank to start merchant banking in 1972.

• SEBI has made it mandatory for all merchant bankers to register with them.

• Categories of Merchant Bankers (as per SEBI):

  1. Category I – Can carry out issue management, act as advisor, consultant, underwriter, and portfolio manager.

  2. Category II – Can act as advisor, consultant, co-manager, underwriter.

  3. Category III – Can act as underwriter, advisor, consultant.

  4. Category IV – Only act as advisors or consultants.

Difference between Merchant Banking and Commercial Banking

Basis	Merchant Banking	Commercial Banking
Main Activity	Corporate advisory & capital market services	Accepting deposits & lending
Clients	Corporates, institutions, HNIs	General public
Focus	Fund raising, restructuring, issue management	Credit creation & financial intermediation
Risk Involvement	Higher (market risk, advisory risk)	Lower (secured lending)

Challenges of Merchant Banking in India

• Over-regulation by SEBI.

• High competition from foreign investment banks.

• Increasing NPAs and risks in underwriting.

• Lack of awareness among small businesses.

• Dependence on economic cycles (booms and recessions).

 Merchant banking acts as a bridge between investors and corporates, ensuring smooth fund flow, investment management, and corporate restructuring.

Lead Managers

Meaning

• A Lead Manager is a SEBI-registered Merchant Banker appointed by a company (issuer) to manage its public issue of securities.

• They are also called Book Running Lead Managers (BRLMs) in the case of book-built issues.

• They act as the main coordinator of the entire issue process, linking the issuer, SEBI, stock exchanges, registrars, underwriters, bankers, brokers, and investors.

Lead Managers are merchant bankers who take full responsibility of planning, managing, and executing a public issue (IPO/FPO/Rights issue) in compliance with SEBI guidelines.

Functions of Lead Managers

1. Drafting of Prospectus

   • Prepare the Draft Red Herring Prospectus (DRHP).

   • Ensure disclosures are as per SEBI (ICDR) Regulations.

   • File the draft with SEBI and incorporate suggestions.

2. Liaison with SEBI and Stock Exchanges

   • Obtain necessary approvals from SEBI, Stock Exchanges, and Registrar of Companies (RoC).

   • Ensure compliance with all legal formalities.

3. Due Diligence

   • Conduct due diligence on the company’s financials, operations, and legal matters.

   • Issue a Due Diligence Certificate to SEBI confirming all disclosures are true and fair.

4. Marketing of the Issue

   • Plan roadshows, advertisements, investor meetings, and PR campaigns.

   • Build investor confidence and attract participation.

5. Pricing and Structuring of Issue

   • Decide on issue price, number of shares, and timing.

   • In case of book building, they manage the bidding process and determine the final price.

6. Appointment of Other Intermediaries

   • Coordinate and appoint registrars, underwriters, brokers, bankers to the issue, debenture trustees.

   • Ensure smooth functioning among all intermediaries.

7. Allotment of Securities

   • Oversee allotment of shares to investors.

   • Ensure shares are credited in demat accounts within stipulated time.

8. Refunds & Listing

   • Supervise refund of excess money in case of oversubscription.

   • Ensure securities are listed on stock exchanges quickly after allotment.

9. Post-Issue Management

   • Submit post-issue monitoring reports to SEBI.

   • Handle investor grievances.

   • Confirm compliance with statutory requirements.

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Number of Lead Managers

• For small issues, there may be one Lead Manager.

• For large issues, companies appoint multiple Lead Managers (Joint Lead Managers or BRLMs).

• Example: Reliance Jio IPO may have ICICI Securities, Kotak Mahindra Capital, Axis Capital, and JM Financial as joint lead managers.

Importance of Lead Managers

• They are the backbone of issue management.

• Ensure legal compliance and protect investors’ interests.

• Provide expert guidance to companies in raising capital.

• Play a critical role in the success or failure of a public issue.

A Lead Manager is a SEBI-approved merchant banker who acts as the chief coordinator of a public issue. They handle everything from drafting prospectus and getting approvals to marketing, pricing, allotment, refunds, and listing.

Underwriters

Meaning

• An Underwriter is a financial intermediary who guarantees that if the public does not subscribe to a company’s issue of securities (shares, debentures, bonds) fully, they will purchase the unsubscribed portion.

• This assures the issuing company that it will raise the required funds.

• In return, the underwriter receives a commission/fee from the company.

In simple terms:
Underwriters act as risk-takers in security issues — they ensure that the issue will be fully subscribed, either by the public or by themselves.

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Definitions

According to SEBI:

“Underwriting means a contract, with or without conditions, to subscribe to the securities of a corporate body when the existing shareholders or the public do not subscribe to the issue.”

According to R. P. Rustagi:

“Underwriting is a service whereby a person agrees to take up securities not subscribed by the public in consideration of commission.”

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Functions of Underwriters

1. Guaranteeing Full Subscription

   • Ensure that the company raises the minimum subscription.

   • Removes the risk of issue failure.

2. Risk Absorption

   • They absorb the risk of undersubscription and provide confidence to the issuer.

3. Advisory Role

   • Help in fixing the issue price, timing, and terms of the issue.

   • Guide the company on investor appetite and market conditions.

4. Boosting Investor Confidence

   • Presence of reputed underwriters gives confidence to investors that the issue is reliable.

5. Facilitating Capital Market Growth

   • By guaranteeing issues, underwriters encourage more companies to raise funds from the market.

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Types of Underwriting

1. Firm Underwriting

   • Underwriter agrees to subscribe a fixed number of shares/debentures, irrespective of public response.

2. Sub-Underwriting

   • The main underwriter may share part of his responsibility with sub-underwriters.

3. Sole Underwriting

   • Entire issue is underwritten by a single underwriter.

4. Joint Underwriting

   • The issue is underwritten by two or more underwriters jointly.

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Benefits of Underwriting

• For the Company (Issuer):

  • Provides assurance of raising capital.

  • Helps in smooth planning of projects.

• For the Investors:

  • Creates confidence in the issue’s credibility.

  • Encourages wider participation.

• For the Capital Market:

  • Strengthens primary market operations.

  • Enhances stability and investor trust.

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Examples of Underwriters in India

• LIC (Life Insurance Corporation of India) – often underwrites government securities.

• ICICI Securities, SBI Capital Markets, Axis Capital, Kotak Mahindra Capital – underwrite corporate IPOs.

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Difference: Underwriters vs. Lead Managers

Basis	Lead Managers	Underwriters
Role	Coordinate the whole issue process	Guarantee full subscription
Responsibility	Draft prospectus, SEBI approvals, marketing, allotment	Purchase unsubscribed portion
Risk	Advisory/management role	Financial risk (in case of undersubscription)
Remuneration	Management fees	Underwriting commission

Underwriters are financial intermediaries who guarantee full subscription of securities in a public issue, thereby reducing risk for the company and boosting investor confidence.

Bankers to the Issue

Meaning

• Bankers to the Issue are scheduled banks appointed by a company (issuer) to collect application money from investors when it issues shares, debentures, or bonds to the public.

• They act as the receiving and refunding agents for application money.

In simple terms:
They are the banks that handle all money-related transactions in a public issue — collecting application money, transferring funds to the issuer, and refunding excess money to investors.

Definition (SEBI)

“A Banker to an Issue means a scheduled bank carrying on all or any of the following activities, namely — acceptance of applications and application monies from investors in respect of issues of capital and refund of application monies.”

Functions of Bankers to the Issue

1. Collection of Application Money

   • Receive money from investors who apply for shares/debentures in a public issue.

   • Accept applications through ASBA (Applications Supported by Blocked Amount) in the case of IPOs.

2. Transfer of Funds

   • After closure of the issue, transfer collected money to the issuer’s account.

3. Refund of Excess Money

   • If the issue is oversubscribed, refund excess application money to investors.

   • Refunds are usually done electronically through NEFT/RTGS/UPI nowadays.

4. Coordination with Registrars and Lead Managers

   • Work closely with registrars to the issue for reconciling application data.

   • Provide regular updates to lead managers about subscription levels.

5. Post-Issue Activities

   • Help in ensuring that refunds, allotments, and transfers are completed within SEBI timelines.

Role in Modern IPO Process (ASBA System)

• In the ASBA (Applications Supported by Blocked Amount) process, introduced by SEBI:

  • Investor’s application money is blocked in their bank account instead of being immediately debited.

  • Money is debited only if shares are allotted.

  • Bankers to the Issue play a vital role in blocking, releasing, and transferring funds.

Examples of Bankers to the Issue in India

• State Bank of India (SBI)

• HDFC Bank

• ICICI Bank

• Axis Bank

• Kotak Mahindra Bank

(Almost all major scheduled commercial banks act as Bankers to the Issue, provided they are SEBI-registered.)

Importance of Bankers to the Issue

• Provide safe handling of public money.

• Ensure smooth financial transactions during issue management.

• Facilitate investor protection by timely refunds.

• Build confidence in the primary market process.

Bankers to the Issue are SEBI-approved scheduled banks that manage all monetary aspects of a public issue — collecting application money, transferring it to the issuer, and refunding excess money to investors. They play a critical role in ensuring transparency, safety, and efficiency in the IPO process.

Meaning

A Registrar to an Issue (RTI) and Share Transfer Agent (STA) are intermediaries registered with SEBI who handle activities related to the issue of securities (like IPOs, FPOs, mutual funds) and the post-issue investor services (like record maintenance, transfer of securities, redemption, etc.).

They act as a bridge between the issuing company, investors, and regulatory bodies.

Registrar to Issue (RTI)

When a company issues shares/debentures, it requires an expert to manage large-scale applications from investors. This is where RTI comes in.

Functions of RTI:

1. Collection of applications – Receives and processes application forms from investors.

2. Scrutiny of applications – Ensures forms are complete and valid.

3. Allotment of securities – Assists in finalizing the basis of allotment in consultation with stock exchanges.

4. Refunds & intimation – Sends refund orders for rejected applications.

5. Dispatch of allotment letters/credit of shares – Issues allotment advice and arranges credit of securities to investors’ Demat accounts.

Share Transfer Agent (STA)

Once shares are issued, companies need to maintain investor records and handle transfer of ownership when shares are bought or sold. This is managed by the STA.

Functions of STA:

1. Maintaining investor records – Keeps detailed registers of shareholders.

2. Transfer of shares – Processes requests for transfer, transmission, or transposition of shares.

3. Issue of duplicate certificates – Helps in case of lost or damaged share certificates (though today, mostly in Demat form).

4. Corporate actions – Distributes dividends, bonus shares, rights issues, etc.

5. Investor grievance redressal – Handles complaints regarding transfers, dividends, or allotment.

Example of RTI & STA companies in India:

• KFin Technologies Ltd.

• Link Intime India Pvt. Ltd.

• Cameo Corporate Services Ltd.

• RTI = handles work at the time of issuing shares/securities.

• STA = handles work after the issue, i.e., maintaining records and facilitating transfer of shares.

Debenture Trustees 

When a company raises funds from the public by issuing debentures (a type of long-term debt instrument), it has a legal responsibility to protect the interests of the debenture holders (investors who lend money to the company). Since individual debenture holders cannot directly monitor the company’s performance or safeguard their rights, an independent institution is appointed – called the Debenture Trustee.

Meaning of Debenture Trustee

A Debenture Trustee is a financial institution, scheduled commercial bank, public financial institution, or any other entity registered with SEBI (Securities and Exchange Board of India) that is appointed by a company issuing debentures to protect the interests of debenture holders.

They act as a link between the issuing company and debenture holders, ensuring that the company complies with all the terms and conditions of the issue.

Legal Framework

• Governed by the SEBI (Debenture Trustees) Regulations, 1993.

• Mandatory under the Companies Act, 2013 and SEBI guidelines for public debenture issues.

• Companies cannot issue debentures to more than 500 investors without appointing a Debenture Trustee.

Functions of Debenture Trustees

1. Due Diligence before the Issue

   • Ensure that the company has made adequate security arrangements for debenture redemption.

   • Check the financial position of the company before agreeing to act as a trustee.

2. Protection of Debenture Holders’ Interest

   • Safeguard the rights of debenture holders.

   • Ensure that the company complies with the covenants of the trust deed.

3. Monitoring Security

   • Ensure that the assets charged against debentures are adequate and not encumbered elsewhere.

   • Periodically monitor the value of security.

4. Communication

   • Inform debenture holders of any default or adverse situation.

   • Call meetings of debenture holders if required.

5. Enforcement of Security

   • Take necessary action if the company defaults in payment of interest or principal.

   • Can even initiate legal proceedings to recover money for debenture holders.

6. Redemption Oversight

   • Ensure that the company creates a debenture redemption reserve.

   • Oversee the timely redemption of debentures.

Eligibility to Act as a Debenture Trustee

• Scheduled commercial banks.

• Public financial institutions.

• Insurance companies.

• Approved financial service companies registered with SEBI.

: Debenture Trustees act as guardians of investors in debenture issues. They ensure that companies follow rules, maintain security, and repay investors on time. 

Portfolio Managers

Meaning

A Portfolio Manager is a professional or institution registered with SEBI (Securities and Exchange Board of India) who manages a client’s investments in securities (shares, debentures, bonds, mutual funds, derivatives, etc.) and other financial assets.
They make decisions about where, when, and how much to invest in order to achieve the client’s financial goals, while considering risk tolerance and return expectations.

 A portfolio manager is like a doctor for your money—an expert who diagnoses your financial needs and prescribes the best mix of investments.

Definition (as per SEBI)

A Portfolio Manager is defined as:

"Any person who, pursuant to a contract or arrangement with a client, advises, directs, or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise), the management or administration of a portfolio of securities or funds of the client."

Types of Portfolio Managers

1. Discretionary Portfolio Manager

   • The manager has full authority to make investment decisions on behalf of the client.

   • Example: If you give ₹10 lakh, the manager decides which shares or bonds to buy/sell without asking you each time.

2. Non-Discretionary Portfolio Manager

   • The manager gives advice, but the final decision rests with the client.

   • Example: The manager may suggest buying Reliance shares, but it’s up to you to approve or reject.

Functions of Portfolio Managers

1. Investment Planning

   • Assess client’s goals (retirement, children’s education, wealth creation).

   • Design a personalized investment strategy.

2. Portfolio Construction

   • Create a mix of equity, debt, mutual funds, bonds, derivatives, etc.

   • Ensure diversification (avoid “putting all eggs in one basket”).

3. Continuous Monitoring

   • Track the performance of investments.

   • Rebalance portfolio when needed (e.g., shift from equity to debt if markets are volatile).

4. Risk Management

   • Identify and minimize risks by diversifying and using hedging tools.

5. Tax Efficiency

   • Invest in instruments that provide tax benefits.

   • Plan capital gains management to reduce tax burden.

6. Reporting and Transparency

   • Provide regular performance reports to clients.

   • Maintain records of investments, profits, and losses.

Role in Issue Management

• Portfolio managers sometimes act as advisors for large investors who want to subscribe to new issues (IPOs, debentures, bonds).

• They guide High Net Worth Individuals (HNIs) and institutional investors on how much to invest and in what category

Portfolio Managers = SEBI-registered experts who design, manage, and monitor investment portfolios for clients, aiming to maximize returns while controlling risks. 

Issue management is a highly specialized activity in the capital market, and its smooth functioning depends on the coordinated efforts of various intermediaries. Merchant banks, acting as lead managers, play the central role by structuring the issue, ensuring regulatory compliance, and guiding the issuer company. Underwriters provide confidence and financial assurance by guaranteeing subscription, while bankers to the issue handle the collection of funds efficiently. Registrars and share transfer agents take care of the allotment process, record maintenance, and investor servicing. Debenture trustees safeguard the interests of debenture holders, ensuring that companies comply with trust deed conditions. Portfolio managers complement this ecosystem by helping investors make informed investment choices.

Together, these intermediaries create a transparent, efficient, and investor-friendly environment for raising capital. They not only build trust between issuers and investors but also ensure compliance with SEBI regulations, thereby contributing to the overall growth and stability of the financial markets