Sebi mulls overhaul of 20-year-old rules governing merchant bankers

As part of its overall attempts to overhaul the regulatory framework governing the capital markets, the Securities and Exchange Board of India (Sebi) is in the process of revising the age-old rules governing merchant bankers that were framed way back in 1992. 

The capital market regulator has already reached out to all the merchant bankers and even the Association of Investment Bankers of India – the umbrella body of all merchant bankers – to get their feedback on the changes required in the 20-year-old regulation – Sebi (Merchant Bankers) Regulations, 1992 -- to bring it in sync with the current times. 

According to persons familiar with the development, there have been a few rounds of deliberations on the matter and the regulator is likely to release a discussion paper based on all the feedback and suggestions. 

“The rules for merchant bankers were framed two decades ago in 1992 and some of the requirements laid down are just not in sync with the current environment. For instance, the rules state that a merchant banking firm can be started with a minimum of just two employees. The market dynamics have changed and so the rules need to be reworked,” said a person familiar with the development. 

Indeed, as one of the clauses in the Sebi (Merchant Bankers) Regulations, 1992 state: “the applicant has in his employment minimum of two persons who have the experience to conduct the business of merchant banker”. 

Meanwhile, people familiar with the matter say that the merchant banking community has suggested increasing the minimum number of employees to 20 of which at least five should have qualifications like CA, CS, CFA, MBA or a post-graduation in commerce or a course in finance or capital market. 

Another important clause requiring a change is the one related to capital adequacy criteria or net worth with the current framework pegging it at ₹5 crore. 

“The capital adequacy limit that was set decades ago has no relevance today. Also, the limit has been enhanced for almost all other categories of intermediaries including mutual funds, and portfolio managers and there is no reason the same should not be done for investment bankers who manage issues worth hundreds or even thousands of crores,” said a merchant banker wishing not to be named as the discussions are not yet public. 

Industry players have also suggested Sebi to abolish the categories laid down within the merchant banking regulations as they feel those are no longer relevant in today's times.

When the rules were framed initially, merchant bankers were classified into 3-4 categories and depending on the category, the firm could manage, co-manage, or just advise on a public issue.

An email query sent to Sebi remained unanswered till the time of publishing this story. 

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