Registration of Underwriters with SEBI

Registration of Underwriters with SEBI- An Overview

The registration of underwriters with SEBI is a regulatory requirement which authorizes the entities to engage in the business of underwriting the issue related to shares or securities in India. However, if the organisation is carrying out activities related to stock brokering or merchant banking, then such certificate or registration would not be required as per Regulation 3 (2) of the Securities and Exchange Board of India (Underwriters) Rules of 1993.

The SEBI registration of underwriters is a mandatory step which requires all organizations to hold a valid certificate granted by SEBI under the Securities and Exchange Board of India (Underwriters) Rules, 1993. Furthermore, the SEBI registration of underwriters must be made in compliance with the provisions of the SEBI guidelines for underwriting.

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Who are Underwriters?

As per regulation 2(f) of the Securities and Exchange Board of India (Underwriters) Rules, 1993, underwriters are individuals/ entities (typically investment banks or stock brokers) having the primary responsibility in underwriting the issue related to shares or securities. The underwriters are authorized risk-accessors which mainly deals in areas like insurance, mortgage, debt securities, banking, equity market, and trading industries.

The merchant bankers and stock brokers granted registration under regulation 12 of the Securities and Exchange Board of India (Underwriters), 1993 are entitled to act as an underwriter. Furthermore, these underwriting agencies shall be governed by the provisions of SEBI Underwriters regulations.

SEBI Regulations Regarding Underwriting

According to SEBI regulations regarding underwriting, the issuer must decide the number of underwriters in advance. In addition to this, prior permission must be obtained from SEBI.

SEBI will grant the final permission after ascertaining the net worth of the underwriters along with their outstanding commitments. As per the instructions quoted by SEBI, the companies should allot three major categories of allottees-

• High Net Worth Individual (HNI)
• Retailers
• Qualified Institutional Buyers (QIB)

Types of Underwriters

Have a look at the two types of underwriters that have gained prominence-

1. Institutional Underwriters:

   Institutional Underwriters are investment banks or financial institutions that assist companies with public issues of shares or debentures. For example, IDBI, ICICI, UTI, LIC, etc.

2. Non-Institutional Underwriters:

   Non-institutional underwriters are usually brokers. They guarantee shares with an approach to earn a commission from the firm floating the issue. For example, any NBFC.

Benefits of Registration of Underwriters with SEBI

The registration of underwriters with SEBI is beneficial for both the individuals and entities applying for the registration under the Securities and Exchange Board of India (Underwriters) Rules, 1993 are, as discussed below:

1. Compliance with Law
   By registration of underwriters with SEBI, the entities or individuals ensure maintaining compliance with the relevant securities laws.
2. Reputation Related to Underwriting
   All the entities or individuals registered with SEBI as an underwriter would be reputed in the eyes of the public.
3. Constant Updates
   Registration of underwriters with SEBI ensures providing time-to-time (constant) notification and updates to the organization.
4. Maintaining Vigilance
   The registration of underwriters with SEBI ensures maintaining proper vigilance by the organisation when it comes to governance and compliance.

How do Underwriters make Money?

Underwriters well-versed in assisting organizations/ institutions to prevent financial losses in long-term investments have a typical revenue stream. The main source of revenue for underwriters with a deep understanding of risk assessment and market conditions is the salary or underwriting commission received from the underwriting institution.

Eligibility Criteria for SEBI Registration of Underwriters

The eligibility criteria required for SEBI registration of underwriters, as discussed under regulation 6A and 9A of the Securities and Exchange Board of India (Underwriters) Rules, 1993, are provided below:

1. Change of Control
   The underwriter processing any change in control is required to obtain prior consent/approval and intimate the Board members and the shareholders so that they can continue to act as such after the change.
2. Compliance with Rules
   The applicant seeking registration or carrying out activities as an underwriter must comply mandatorily with the regulations provided by SEBI and other regulatory authorities.
3. Capital Adequacy Requirement
   The capital adequacy requirement, as mentioned under regulation 7 of the Securities and Exchange Board of India (Underwriters) Rules, 1993, shall be not less than the net worth of Rs. 20 lakhs.
4. Fit and Proper Criteria
   The applicant or underwriter seeking registration under the SEBI Underwriters Regulations is required to possess the fit and proper criteria as specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.
5. Key Management Executive
   The applicant seeking registration of underwriter with SEBI must possess past experience in underwriting. Also, two directors, partners, principal officers, or shareholders with valid experience in underwriting must be employed by the key management personnel.
6. Office Infrastructure
   The applicant or underwriter seeking registration under the Securities and Exchange Board of India (Underwriters) Rules, 1993, must possess necessary infrastructure, such as adequate office space, equipment, and manpower, to effectively discharge his activities.

Documents Required for Registration of Underwriters with SEBI

The documents required for registration of underwriters with SEBI are as discussed below:

• Partnership Deed, information/ particulars of partners (for Partnership/ LLP)
• Company’s Certificate of Incorporation
• Memorandum & Articles of Association (MoA & AoA)
• Board Resolution Authorizing for Registration of Underwriters
• Declaration Signed by Principal Officers
• Details of Applicants
• Company’s Address Proof
• Details of Infrastructural Facilities
• Business Plan (for 3 years)
• Financial Information (like capital structure, resource deployment, etc.)
• Any other information (if deemed necessary)

Procedure for SEBI Registration of Underwriters

The procedure for SEBI registration of underwriters, which ensures maintaining a robust and trustworthy securities market in India as discussed below:

1. Filing of Application
   The applicant entities are required to file an application as specified in Form A of the Securities and Exchange Board of India (Underwriters) Rules, 1993, to the Securities and Exchange Board of India.
2. Payment of Non-Refundable Fees
   The application for registration filed under regulation 3A (1) of the Securities and Exchange Board of India (Underwriters) Rules, 1993, shall be accompanied by a non-refundable application fee as specified in Schedule II.
3. Furnishing of Further Information
   After the due submission of application and application fees, the Board may furnish further information or clarification regarding matters related to underwriting. The Board is authorized to decide upon the application and seek further information through correspondence if required.
4. Opportunity to Remove Objections
   Any incomplete application submitted to the Board shall be given the opportunity to remove such objections within 1 month. The Board is authorized to make a further extension of another 1 month only after giving sufficient reasons.
5. Grant of Certificate of Registration
   Upon the due confirmation of the application, the Board sends an intimation to the applicant regarding the grant of a certificate in Form B for the registration of underwriters with SEBI. Usually, the process takes around 1 month from the date of submitting the application to the Board.

Procedure if Registration of Underwriters is not Granted

As per Regulation 10, the procedure if the registration of underwriters under Regulation 3A is not granted or rejected by the Securities and Exchange Board of India is as discussed below:

• The board’s decision shall be communicated to the Board within 30 days of such decision.
• The grounds for such rejection shall be communicated to the Board.
• Re-apply within 30 days from the date of receipt of such intimation to the Board.
• The board shall reconsider its decisions and communicate its findings in writing.

Compliance Needs for Registration of Underwriters with SEBI

Given below are the compliance requirements for registration of underwriters with SEBI under the Securities and Exchange Board of India (Underwriters) Rules, 1993-

1. Abide by Code of Conduct:

   Every SEBI registered underwriter shall abide by the Code of Conduct as specified in Schedule III of the Securities and Exchange Board of India (Underwriters) Rules, 1993.

2. Enter Into Agreements:

   The underwriters seeking registration under the SEBI regulations regarding underwriting must enter into a valid agreement/ contract with a corporate body or organization on whose behalf it is acting as underwriter.

3. Maintain Books of Accounts:

   The underwriters are required to maintain and keep records of books of accounts, balance sheet, profit and loss account, auditor’s report. Further, these records and information must be preserved for a minimum period of 5 years.

4. Appoint Compliance Officer:

   Every underwriter shall appoint a compliance officer responsible for monitoring compliance with the Act, rules and regulations, notifications, guidelines, etc. issued by the Board or Central Government.

5. General Responsibilities:

   Further, the SEBI registered underwriters must comply with its general responsibilities, such as prohibiting deriving direct or indirect benefit from underwriting and not exceeding twenty times the net worth referred to in regulation 7.

Penalties for Non-Compliance with Registration Requirements

The penalties for non-compliance with any provisions of the Act dealing with the registration requirements are actions as specified under Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. The penalties for non-compliance with registration requirements are imposed due to the following reasons:

• Fails to comply with the conditions imposed.
• Contravenes any provisions related to the underwriting.
• Fails to provide any information related to the business of underwriting when requested by the Board.
• Fails to make submissions of periodical submissions as per the requirements of the Board.
• Not cooperative during any formal investigation or inquiry process.
• Fails to pay the required amount for registration.
• Carries some form of misconduct or criminal activities.

Validity of Certificate for Registration of Underwriters in India

As defined under regulation 8 (2) of the Securities and Exchange Board of India (Underwriters) Rules, 1993, the certificate for registration of underwriters in India is valid unless it is suspended or cancelled by the Securities and Exchange Board of India.

Fees for Registration of Underwriters with SEBI

The fees (excluding professional fees) for registration of underwriters under the Securities and Exchange Board of India (Underwriters) Rules, 1993, as mentioned in Schedule II are outlined below:

• Pay a fee of Rs. 13,333,000 within 15 days from the date of receipt of a certificate of registration.
• Pay a fee of Rs. 5 lakhs every three years from the sixth year of the grant of certificate of registration (to keep their registration in force).
• Pay a non-refundable fee of Rs. 25,000 along with an application for registration under sub-regulation (1A) of regulation 3A.

Timeline for Registration of Underwriters with SEBI

Usually, it takes around 1 month to secure the registration of Underwriters with SEBI under the Securities and Exchange Board of India (Underwriters) Rules, 1993.

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