Some good, some bad: Experts on Sebi’s plan for tough merchant banking norms

livemint.com:

Sebi proposes mandate for regulated entities to maintain stakeholder communication records “It has been observed that merchant bankers are engaged in private placement activities pertaining to unlisted companies, advisory services for projects and syndication of rupee term loans, which are outside the domain of SEBI," the paper said. Arguing that such activities pose significant regulatory and systemic risks, the regulator proposed an overhaul of its regulations governing merchant bankers. Sebi’s paper clarified that merchant bankers—excluding banks and public financial institutions—will undertake only those activities that are related to the securities market and fall under Sebi’s jurisdiction.

Merchant bankers engaged in activities other than the permissible ones will segregate those within two years from a date which the board will specify, the paper said. Sebi clarified that activities that require separate regulatory registration and licence that do not concern the securities market will not be permitted as per the regulations. While most industry experts appreciated Sebi’s move, stating that such an overhaul was long due to get the right kind of players in the market, some merchant bankers feared it would discourage smaller players.

Anjali Aggarwal, partner and head of capital markets at wealth management firm Corporate Professionals, said the move was crucial to tackle the mushrooming of merchant bankers in the market. “In the last three years, as per the Sebi website, 27 new merchant bankers have been registered. This influx raised concerns over their quality of due diligence.