Regulatory Measures for Primary Market
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Questions and Answers

What does SEBI require companies to disclose regarding their projects?

  • Only project completion timelines
  • Only the potential earnings from the projects
  • Confidential investor information
  • All material facts and risk factors (correct)

    • What is the purpose of encouraging Initial Public Offers (IPOs) according to SEBI?

  • To increase government revenue from taxes
  • To eliminate the requirement for public disclosures
  • To allow companies to issue shares at any random price
  • To facilitate companies in determining the par value of shares (correct)

    • Why has the private placement market gained popularity among issuers?

  • It offers low costs and saves time on issuance (correct)
  • It requires no disclosures whatsoever
  • It follows the same strict rules as public issues
  • It completely bypasses SEBI regulations

    • What condition remains in force regarding underwriting for public issues?

    <p>If an issue is not underwritten, it must still collect 90% of the amount</p> Signup and view all the answers

    What is a recent regulation regarding merchant banking by SEBI?

    <p>Merchant bankers must be authorized by SEBI</p> Signup and view all the answers

    Which of the following is NOT a condition imposed by SEBI regarding the application size?

    <p>Applications can be made for any nominal amount</p> Signup and view all the answers

    What has SEBI made compulsory regarding the issue of certification?

    <p>Due diligence certificates must be included in offer documents</p> Signup and view all the answers

    What aspect of advertising for public issues does SEBI advise on?

    <p>A code of ethics for advertising in media</p> Signup and view all the answers

    What percentage of the issue amount is required as a compulsory deposit from companies making public issues?

    <p>1%</p> Signup and view all the answers

    What can happen to the compulsory deposit if a company fails to comply with the listing agreement?

    <p>It can be forfeited</p> Signup and view all the answers

    Which of the following types of investors does not require submission of money along with their bids?

    <p>Qualified institutional buyers (QIBs)</p> Signup and view all the answers

    What new guideline was recently provided for mutual funds regarding public issues?

    <p>They can now apply for firm allotments</p> Signup and view all the answers

    Which category of investors includes mutual funds and banks?

    <p>Qualified institutional buyers (QIBs)</p> Signup and view all the answers

    What is the primary role of SEBI in vetting offer documents?

    <p>To ensure proper disclosure by issuing companies</p> Signup and view all the answers

    What change did SEBI implement to address manipulative practices by QIBs?

    <p>They must now pay a margin upon bidding</p> Signup and view all the answers

    Which of the following categories is NOT mentioned as a type of investor in the primary market?

    <p>Corporate investors</p> Signup and view all the answers

    What is the primary role of merchant bankers in relation to businesses?

    <p>They help businesses raise finance and manage issues related to securities.</p> Signup and view all the answers

    Which of the following is NOT a function of merchant banking?

    <p>Retail banking services</p> Signup and view all the answers

    How do merchant banks support corporate clients?

    <p>By granting support in project finance and capital restructuring.</p> Signup and view all the answers

    What type of clients do merchant banks typically serve?

    <p>Large corporations and multinational businesses.</p> Signup and view all the answers

    What does corporate counseling in merchant banking typically include?

    <p>Offering strategic guidance to improve corporate performance.</p> Signup and view all the answers

    Which aspect of merchant banking supports expansion and restructuring of a business?

    <p>Corporate advisory services</p> Signup and view all the answers

    What distinguishes merchant banks from traditional banks?

    <p>Merchant banks only deal with businesses rather than individuals.</p> Signup and view all the answers

    What is an important benefit of merchant banking for large business entities?

    <p>It enhances their financial strength and supports international trade.</p> Signup and view all the answers

    What is one of the primary roles of a merchant banker in project implementation?

    <p>Reviewing technical feasibility of the project</p> Signup and view all the answers

    Which aspect does capital structuring NOT typically involve?

    <p>Preparation of market analysis</p> Signup and view all the answers

    In what way do merchant bankers assist with portfolio management?

    <p>By making informed investment decisions considering taxation and inflation</p> Signup and view all the answers

    What is meant by issue management in the context of merchant banking?

    <p>Marketing corporate securities to the public</p> Signup and view all the answers

    Which of the following best describes the role of credit syndication in merchant banking?

    <p>Facilitating loans through various financial institutions</p> Signup and view all the answers

    What does the capital structure typically define?

    <p>The financial arrangements needed for a project</p> Signup and view all the answers

    In issue management, what is the difference between pre-issue and post-issue management?

    <p>Pre-issue involves marketing while post-issue deals with investor relations.</p> Signup and view all the answers

    Which of the following roles does a merchant banker NOT perform?

    <p>Managing corporate accounting departments</p> Signup and view all the answers

    What is the first step a merchant banker takes in the appraisal process of a project?

    <p>Verifying the project's viability</p> Signup and view all the answers

    How do companies typically receive working capital financing?

    <p>Based on their earning capacities relative to market interest rates</p> Signup and view all the answers

    Which of the following is true regarding venture capital financing?

    <p>Only a few institutions are willing to finance it due to its risks.</p> Signup and view all the answers

    What was a significant event in 1973 that impacted merchant banking activities in India?

    <p>The introduction of the Foreign Exchange Regulation Act (FERA)</p> Signup and view all the answers

    What role do merchant bankers play in issue management?

    <p>They advise on the size and timing of public issues considering market conditions.</p> Signup and view all the answers

    Which of the following banks initiated merchant banking services first in India?

    <p>National Grindlays</p> Signup and view all the answers

    What is a crucial requirement for companies seeking to raise finance through fixed deposits?

    <p>They need to fulfill credit rating requirements.</p> Signup and view all the answers

    What specific contribution does a merchant banker make to the capital structure of a project?

    <p>They help determine the promoter's contribution.</p> Signup and view all the answers

    Study Notes

    Regulatory Measures for Primary Market

    • SEBI introduced mandatory disclosure of all material facts and project risk factors by companies.
    • Companies must disclose the basis for calculating share premiums and adhere to advertising ethics for public issues.
    • SEBI encourages Initial Public Offers (IPOs) by allowing companies to set share par values and adopt book building for share allocation.
    • A surge in private placements is noted due to less stringent entry norms and reduced costs associated with public issues.
    • Underwriting of issues is now optional; however, if an issue does not collect at least 90% of the public offering, all funds must be refunded.
    • Lead managers are required to issue a due diligence certificate as part of the offer document.
    • Minimum application sizes and allotment proportions for institutional investors, like mutual funds, have been increased.
    • Regulations on merchant banking are established, requiring SEBI authorization and increasing accountability in offer documents.
    • A 1% compulsory deposit on public issues is mandated to ensure compliance and timely actions by companies.
    • The government permits private mutual funds while UTI comes under SEBI's jurisdiction; mutual funds can now apply for firm allotments and underwrite public issues.
    • SEBI is responsible for vetting offer documents to ensure compliance with disclosure rules, reinforcing market integrity.

    Types of Investors

    • The primary market attracts a diverse range of investors, categorized as:
      • Qualified Institutional Buyers (QIBs)
      • Non-Institutional Investors
      • Retail Investors
    • QIBs include mutual funds, banks, and financial institutions; they previously had no bidding margin requirements, which led to manipulative practices, now amended.

    Merchant Banking Overview

    • Merchant banks provide essential services, including issue management, project financing, and corporate advisory.
    • Services focus on assisting businesses with fundraising, expansion, and compliance, tailored to the financial needs of corporations.
    • Merchant banking does not cater to the general public and primarily serves large corporations.

    Functions of Merchant Banking

    • Corporate Counseling: Offers guidance on project planning, capital restructuring, and public issue management to enhance business performance.
    • Project Counseling: Assists in project finance, feasibility studies, and obtaining necessary approvals for project implementation.
    • Capital Structuring: Involves planning capital requirements, debt-equity ratios, and issuing shares and debentures.
    • Portfolio Management: Aids clients in investment decisions, considering risks and potential returns.
    • Issue Management: Involves marketing corporate securities and managing the process before and after the issue.
    • Credit Syndication: Facilitates raising syndicated loans by appraising projects and connecting with financial institutions.
    • Working Capital Financing: Provides companies with financing based on earning capacities and market interest rates.
    • Venture Capital: Assesses entrepreneurs' capabilities for high-risk financing opportunities.
    • Fixed Deposits: Assists companies in raising public finance through fixed deposits, contingent on credit ratings.

    History of Merchant Banking in India

    • Merchant banking began in India in 1967 with National Grindlays and was followed by Citi Bank in 1970.
    • SBI started a dedicated merchant banking division in 1972, followed by other banks like ICICI.
    • The introduction of the Foreign Exchange Regulation Act (FERA) in 1973 spurred growth in merchant banking activities.

    Role in Issue Management

    • Merchant bankers manage corporate securities issuance, including marketing and advising on public offerings.
    • They provide strategic advice on issue size and timing based on market conditions.

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    Related Documents

    Unit II Primary Markets Notes PDF

    Description

    This quiz covers the Securities and Exchange Board of India (SEBI) guidelines regarding capital issues in the primary market. It emphasizes the importance of disclosing all material facts and risk factors associated with company projects as mandated by SEBI. Test your knowledge of these essential regulations.

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