Registration of Underwriters with SEBI- An Overview

Before going through the process and procedure related to registration of underwriters with SEBI, it is important to know the meaning of an underwriter. As per regulation 2(f) of the Securities and Exchange Board of India (Underwriters) Rules, 1993 an underwriter is an individual who has the primary responsibility in underwriting the issue related to shares or securities. As per regulation 2(g) of the above regulations underwriting can be defined as an agreement or a contract which has the stipulation to subscribe to the shares of the body corporate, if the existing shareholders or the public do not undertake to subscribe to the issue.

As per the above regulations no organization or person is required to carry out the works related to underwriting an issue without holding a valid certificate from SEBI. Hence registration of underwriters with SEBI is mandatory. Such provision for registration of underwriters with SEBI is present under regulation 3(1) of the above regulations.

However, if the company or the organization has applied for the certificate of registration or has a pending certificate of registration, then they can carry out the above activities. This is present under regulation 3 of the above regulations. Such application has to be made in compliance with Regulation 12 of the above regulations.

According to regulation 3(2), stock brokers or merchant bankers do not require a separate certificate of registration for carrying out the activities related to underwriting a specific issue. Hence from the above it is clear that Registration of Underwriters with SEBI is a mandatory step required to be considered for all organisations carrying out activities related to underwriting a specific issue. However, if the organization is carrying out activities related to stock brokering or merchant banking, then such certificate or registration would not be required.

Benefits of Registration of Underwriters with SEBI

The following are the benefits of registration of underwriters with SEBI:

• Compliance with Law

  All organisations or individuals have to carry out the requirements related to Registration of Underwriters with SEBI. If this is carried out, an organization would be compliant with the relevant securities law.

• Reputation Related to Underwriting

  Organizations registered with SEBI would be reputed in the eyes of the public.

• Constant Updates

  By registering with the SEBI, notifications and updates from time to time would be provided to the organisation. Hence through this proper form of vigilance can be maintained by the organization when it comes to governance and compliance.

Eligibility Criteria for Registration of Underwriters with SEBI

The following eligibility criterion has to be satisfied for registration of underwriters with SEBI:

• Payment of Fees

  The applicant has to pay the requisite fee for registration of underwriters with SEBI. Such requirement is present under regulation 4(c) of the Securities and Exchange Board of India (Underwriters) Rules, 1993. The amount of Non-refundable fees to be paid along with the Application for registration shall be Rs. 25000/-. Every underwriter shall pay fees of thirteen lakh thirty-three thousand & three hundred rupees at the time of grant of Certificate of initial registration.

• Agreement with Corporate Body

  The underwriter has to ensure that there is a prior agreement or a contract with a corporate body or the organization that the applicant is going to carry out underwriting services with respect to the particular issue at hand. Such requirement is present under regulation 4(b) of the Securities and Exchange Board of India (Underwriters) Rules, 1993.

• Compliance with Rules

  The applicant has to ensure that he abides by the rules which are provided by the SEBI and other regulatory authorities. Such requirement is present under regulation 4(d) of the Securities and Exchange Board of India (Underwriters) Rules, 1993.

• Change of Status

  The applicant has to ensure if he is granted such registration, prior consent would be taken from the board members and the shareholders. Such requirement is present under regulation 4(a) of the Securities and Exchange Board of India (Underwriters) Rules, 1993.

• Infrastructure of Office

  For registration of underwriters with SEBI, there is requirement of proper infrastructure facilities present in the office. This would include the office space, presence of adequate manpower and employees to carry out all the responsibilities. This would be in accordance with regulation 6(a) of the above regulations.

• Experience of Key Management Executives

  The applicant has to have some form of past experience relating to underwriting the issue. The directors or the shareholders have to have minimum two years related to underwriting a specific issue. This would be in accordance with regulation 6(b) of the above regulations.

• Capital Adequacy Requirement

  As per regulation 6(d) of the above regulations the applicant has to ensure to suffice the requirements related to capital adequacy. The capital adequacy must be not less than the net worth of Rs. 20 Lakh.

  If a stock broker is carries out activities related to underwriting a specific issue, then the capital adequacy requirements have to be fulfilled as mentioned by the stock exchange.

  If a merchant banker carries out the activities related to underwriting a specific issue, then the capital adequacy requirements have to be fulfilled as per regulation 7 of the Securities and Exchange Board of India (Merchant Banker) Regulations 1992.

  Note: Net worth Requirement for the above

  For a proprietorship or an association of persons, the net worth requirement would be the amount which is contributed by the applicant and include the free reserves.

  For a company or a body corporate, the net worth requirement would be the amount of paid up capital and the free reserves which is present in the books of accounts of the applicant. This would be at the time the applicant is making such application under regulation 3(1).

• No Conviction of Key Management Executives

  The key management executives of the company should not have any form of criminal convictions or be undischarged as an insolvent.

• Pass Fit and Proper Person

  The key management executives have to pass the requirements of a fit and proper person test. Such requirements would be conducted by the SEBI from time to time.

Procedure for Registration of Underwriters with SEBI

The following procedure has to be considered for registration of underwriters with SEBI:

• The applicant has to make an application in Form A. Such application has to be made to the board. After this the board would review the application and see if the requirements of the applicant confirm with the requirements for underwriters.
• If more information or documentation is required, then the board would notify the applicant related to requirement of more information. The applicant under registration of underwriters with SEBI would also be given an opportunity to appear before the board for the application.
• The application must confirm as per the requirements related to the underwriters. If the application does not confirm with the above requirements then such application would be rejected. These requirements would be met if the above eligibility criterion is fulfilled by the applicant. The capital adequacy requirement has to be considered by the applicant.
• If there are no problems with the application, then the board would send an intimation to the applicant regarding the grant of certificate related to registration of underwriters with SEBI. Usually this process would be carried within a period of one month from the date of submitting the application.
• The certificate of registration would be granted in Form B. However such requirement depends on the payment of appropriate fees by the applicant. The payment of fees has to be made by the applicant for grant of certificate of registration as per Schedule II.
• Every applicant has to abide by the code of conduct as per regulation 13 of the Underwriters Regulation 1993.

Procedure to be followed if registration is not granted

The following procedure has to be considered if the registration of underwriters with SEBI is not granted:

• After the application, the decision for granting the application or rejecting the application would be provided in a period of 30 days.
• Under regulation 10 the applicant would be given an opportunity of being heard by the board.
• Regulation 10(3) would give the applicant thirty days time from the intimation for reconsidering the decision related to registration of underwriters. The board would consider different grounds and write back to the applicant related to the decision.
• Any underwriter who has been refused an application has to cease to perform duties which are carried out by an underwriter. This would be relevant under regulation 11 of the underwriter regulations.

Renewal of Registration of Underwriters

There is a period of validity for underwriter's certificate. This certificate would only be valid for a period of three years.

Regulation 9 requires the applicant to go for renewal of the certificate of registration. Such process of renewal must occur three months before the expiry of the certificate.

If the applicant has to go for renewal of the certificate, the requirements of renewal would be the same as the requirements related to granting the initial certificate of registration.

Penalties for Non Compliance with Registration Requirements

As per regulation 25 of the Underwriters Regulations, if an underwriter or a stock broker or a merchant banker fails to comply with the conditions imposed or contravenes any provisions related to the underwriting then it would lead to the following:

• Suspension of Registration
• Cancellation or Revocation of Registration Certificate

  • Suspension of the certificate can occur if the applicant:

• violates any compliance requirements as per the above rules.
• Fails to provide any information related to the business of underwriting when requested by the SEBI board.
• Does not submit periodical returns as per the requirements of the board.
• Is not cooperative when it comes to any formal investigation or inquiry process.
• Does not pay the required amount for registration as per regulation 12 of the above regulations.
• Carries out some form of misconduct or criminal activities.

Documents required for Registration of Underwriters with SEBI

The following documents are required for registration of underwriters with SEBI:

Partnership /LLP

• Partnership Deed
• Information on Partners
• Particulars related to the Partners
• Form A

Company

• Certificate of Incorporation of the Company
• Memorandum of Association and Articles of Association
• Form A
• Information on the Directors and Shareholders
• Copy of the Board Resolution Taken by the Company
• Information of Year of Incorporation of the Applicant
• Organisational Chart Providing Details related to the responsibilities of all the employees
• Particulars of all Proprietors/ Partners/ Managers/ Officers/ Directors
• Details of the Office / Floor Plan and Other Information on Employees
• Information on capital structure in Lakhs
• Signed Declaration related to grant of certificate of registration  (Registration of Underwriters with SEBI)

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