Overview of Registration of Underwriters with SEBI
According to the SEBI, an underwriter is an authorized risk-assessor. The underwriters evaluate the risks in the planning & performing of the other party. The underwriters must register themselves with SEBI & must be authorised by getting a license. And they mainly deal in areas like Insurance industry, debt securities, banking industry, mortgage industry, equity market & trading. They are also known as risk experts and help organisations or institutes to preclude financial losses in the long-term investments. To act as an experienced underwriter in the market, the ambitious applicant needs to get a registration/license under the SEBI. Underwriting must be performed under the guidelines established by SEBI under SEBI (Underwriters) Regulations, 1993. 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 securities/shares in India. However, if any organisation is carrying out activities related to merchant banking/stock brokering, then such certificate/registration wouldn’t be required as per Regulation 3 (2) of the SEBI (Underwriters) Rules, 1993.
What are the SEBI Regulations for Underwriting?
As per SEBI Regulations for underwriting, the issuer must decide the number of underwriters in advance. Furthermore, prior permission must be obtained from the SEBI. SEBI will grant the permission after determining the net worth of the underwriters along with their outstanding commitments. According to the instructions quoted by SEBI, the companies must allot 3 main categories of allottees:
- HNI or High Net Worth Individual;
- Qualified Institutional Buyers (QIB);
- Retailers.
What are the Different Types of Underwriters?
The following are the different types of underwriters:
- Corporate Underwriters: Companies providing underwriting services for private and public offerings;
- Banking & Financial Institutions: Authorized individuals that provide underwriting services while acting as a part of their undertakings;
- Individual: List of registered individuals involved in the business of the underwriting of securities.
Benefits of Hiring a Registered Underwriter under SEBI
The following are the benefits of registered underwriters:
- All individuals or organisations need to perform the compliance activities linked with the Registration of Underwriters with SEBI. By doing this, an organisation remains compliant with the law;
- A Company registered with SEBI gets notifications & updated continuously. Therefore, the company can maintain alertness for good governance & compliance;
- Organisations registered under SEBI have a good reputation in the securities market;
- Registered underwriters provide time to time constant updates/notifications to the organization;
- It provides the client with confidence because government approval is a man factor.
Eligibility Criteria for the Registration of Underwriters with SEBI
The following is the eligibility criteria for the Registration of Underwriters with SEBI:
- The applicant makes sure that if he/she is taken in prior consent from the board members & the shareholders before applying for such registration. This requirement is as per Regulation 4(a) of the SEBI (Underwriter) Rules, 1993;
- According to the Regulation 6(d) of the SEBI (Underwriters) Rules, 1993 the applicant must make sure that the associated capital is sufficient or not. The capital adequacy must not be less than Rs. 20 Lakhs;
- The applicant should follow the principles and compliance norms prescribed by the SEBI & other regulatory authorities. Such requirement is present under regulation 4(d) of the SEBI (Underwriters) Rules, 1993;
- For the Registration of Underwriters, the entity of the applicant must have a proper infrastructure facilities present within its office. This includes office space & the presence of enough manpower to handle all the responsibilities. This is as per Regulation 6(a) of the above-mentioned SEBI regulations;
- The applicant must have some experience concerning the underwriting of issues related to securities. The administrators/shareholders of the applicant entity need to have a minimum of 2 years of experience in underwriting a selected issue. This is prescribed under regulation 6(b) of the SEBI Regulations;
- The applicant must be able to pay the requisite fee for the Registration with SEBI. Such requirement is stated in Regulation 4© of the SEBI (Underwriters) Rules, 1993;
- The underwriter must confirm that there is a previous contract or agreement with a company that the applicant is going to give underwriting services regarding a particular issue. Such requirement is given under regulation 4(b) of the SEBI (Underwriters) Rules, 1993.
Documents Required for the Registration of Underwriters with SEBI
The following is the list of documents required for the Registration of Underwriters with SEBI:
- Certificate of Incorporation of a company;
- For Partnership/LLP, Partnership Deed is required;
- MoA (Memorandum of Association) and Articles of Association (AoA);
- Applicant’s details;
- Address proof of the company;
- Details of Infrastructure facilities;
- Board Resolution authorizing for Registration of Underwriters;
- Declaration signed by Principal Officers;
- Three years of Business Plan;
- Financial Information such as capital structure, resource deployment, etc;
- Any other details (if required).
Step-by-Step Process for the Registration of Underwriters with SEBI
- The applicant must file an application to the board in Form-A. After this, the Board Authority will review it & see if the application is suitable as per the norms for underwriters registration;
- If more details or documents are required, then the SEBI would notify the applicant about the requirement & give him some time to meet them. The applicant might also be interviewed by the Board before the grant of Registration;
- The application must agree to the norms associated with the underwriters’ rules of SEBI. If the appliance doesn’t meet the standards of the above requirements then it would b rejected. These standards would be met only the eligibility criterion mentioned above is fulfilled by the applicant. The capital adequacy requirement must be met by the applicant;
- If there are no issues with the application, then the SEBI would send an intimation to the respective candidate regarding the issuance of the Registration Certificate for Underwriters. Generally, the complete process of this registration takes 1 month of time to complete from the date of submitting the application;
- The Certificate of the Registration for Underwriters with SEBI is issued in Form-B. However, it requires the payment of a prescribed fee by the applicant before the issuance of certificate as per Schedule II of SEBI (Underwriters) Rules;
- Every applicant should follow the Code of Conduct mentioned in the Regulation 13 of the SEBI Underwriters Regulations 1993.
Renewal of the Registration Certificate of Underwriters
The validity of Registration Certificate of Underwriters is for 3 years. The Regulation 9 of the SEBI Rules require the applicant to renew the Registration Certificate, and such a process or renewal must be initiated at least 3 months before the expiry of the certificate. For the renewal of an existing registration certificate, the norms would be the same as the norms for the grant of the existing certificate earlier.
Code of Conduct of Underwriter
- Every underwriter should maintain high standards of dignity, transparency, integrity & fairness with clients.
- The underwriter shouldn’t make any statement either written or oral which would misrepresent.
- An underwriter should act properly in all their dealings with a body corporate making an issue of securities.
- Every underwriter shouldn’t suppress the material facts in any documents, papers, reports or detailed provided to the SEBI.
- Underwriters shouldn’t reveal the confidential information to other parties.
- They shouldn’t involve in any unfair competition which could harm the interest of other underwriters/carrying out any assignment.
Compliance for the Registration of Underwriters with SEBI
The following are the compliance for the registration of underwriters with SEBI:
- Maintain Books of Accounts: The underwriters are required to maintain & keep records of books of accounts, balance sheet, P&L Account, auditor’s report. Moreover, these records & information must be preserved for a minimum period of 5 years.
- Appoint a Compliance Officer: Every underwriter shall appoint a compliance officer who is responsible for checking compliance regularly with the Act, Rules & Regulations notifications, guidelines, etc. issued by the Board or Central Government.
- Agreement or Contract: The underwriters looking for the Registration under SEBI must enter into a valid agreement or contract with a corporate body or organisation on whose behalf it is acting as underwriter.
- Follow the Code of Conduct: Every SEBI Registered underwriter shall comply with the Code of Conduct as mentioned under Schedule III of SEBI (Underwriters) Rules, 1993.
Penalties for Non-Compliance
The penalties for non-compliance are specified under Chapter V of the SEBI (Intermediaries) Regulations, 2008. The penalties for non-compliance with Registration requirements are imposed due to the following reasons:
- Fails to make submissions of periodical submissions as per the SEBI requirements;
- Fails to pay the required amount for the Underwriter registration;
- Carriers some form of misconduct or criminal activities;
- Contravenes any provisions related to the underwriting;
- Fails to comply with the conditions imposed;
- Fails to provide any details related to the underwriting business when required by the SEBI.
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