Unit study guide · NISM Series III-A
SEBI (Merchant Bankers) Regulations 1992, etc.
9 questions in this unit
What this unit covers
- Which activity most directly describes a merchant banker’s role in a securities issue?
- Which task is most closely associated with a banker to an issue?
- What does delisting of equity shares from a stock exchange mean?
- An issuer asks its merchant banker to accept a major business claim without checking supporting evidence. What should the merchant banker do?
- A sole underwriter agrees to cover the full shortfall in a 10-lakh-share issue. Valid public subscriptions total 8 lakh shares. What is the underwriting liability?
- A company completes a compliant buyback and extinguishes the bought-back equity shares. What happens to the number of outstanding shares?
- An acquirer obtains control over a listed target without reaching 25% voting rights. No exemption applies. Can an open-offer obligation still arise?
- An acquirer holds 18% and its persons acting in concert hold 5% of a listed target. It proposes another 3%. No exemption applies. What follows?
- Due diligence uncovers a material inconsistency between an offer-document claim and verified records. The issuer wants to proceed unchanged. What should the merchant banker do?
Key ideas
From the practice bank · 1
Which activity most directly describes a merchant banker’s role in a securities issue?
A merchant banker manages issue-related work and performs the associated professional due-diligence responsibilities. Remember: Merchant banking is a professional issue-management role, not a return guarantee.
Hint Common mistake: Confusing management of an issue with assurance of its investment performance. Focus on organising and checking the capital-raising process.
III-A-101From the practice bank · 2
Which task is most closely associated with a banker to an issue?
A banker to an issue handles the relevant issue-related monies and payment functions under the applicable process. Remember: Different issue intermediaries perform distinct payment, advisory and record functions.
Hint Common mistake: Assuming the lead merchant banker and banker to the issue have identical duties. Separate payment processing from advice, record administration and regulation.
III-A-102From the practice bank · 3
What does delisting of equity shares from a stock exchange mean?
Delisting removes the shares from an exchange’s listing and does not by itself cancel every shareholder’s ownership. Remember: Listing status and ownership of the security are different concepts.
Hint Common mistake: Assuming delisting automatically means the company’s shares cease to exist. Distinguish exchange-listing status from the existence of the shares.
III-A-103From the practice bank · 4
An issuer asks its merchant banker to accept a major business claim without checking supporting evidence. What should the merchant banker do?
The merchant banker should assess the supporting evidence using due diligence and independent professional judgment. Remember: Issuer assertions require professional scrutiny rather than automatic acceptance.
Hint Common mistake: Treating an issuer’s confirmation as a substitute for due diligence. Recall the difference between repeating an issuer’s statement and checking it.
III-A-104From the practice bank · 5
A sole underwriter agrees to cover the full shortfall in a 10-lakh-share issue. Valid public subscriptions total 8 lakh shares. What is the underwriting liability?
The liability is 2 lakh shares under the stated agreement. Shortfall = 10 lakh − 8 lakh = 2 lakh shares. No firm underwriting or other adjustments are assumed. Remember: Underwriting liability depends on the agreed commitment and adjusted subscription shortfall.
Hint Common mistake: Ignoring valid public subscriptions when calculating the assumed liability. Use the agreed shortfall coverage and the valid subscription amount.
III-A-105From the practice bank · 6
A company completes a compliant buyback and extinguishes the bought-back equity shares. What happens to the number of outstanding shares?
Outstanding shares decrease when the company extinguishes the shares bought back. Remember: A buyback with extinguishment reduces the outstanding share count.
Hint Common mistake: Treating every share purchase as an unchanged transfer of ownership. Distinguish an issuer’s buyback and cancellation from ordinary investor-to-investor trading.
III-A-106From the practice bank · 7
An acquirer obtains control over a listed target without reaching 25% voting rights. No exemption applies. Can an open-offer obligation still arise?
An open-offer obligation can arise because acquisition of control is a separate trigger under regulation 4. Remember: Evaluate both voting rights and control in a takeover analysis.
Hint Common mistake: Checking only a shareholding percentage and overlooking control rights. Distinguish the voting-percentage trigger from the control trigger.
III-A-107From the practice bank · 8
An acquirer holds 18% and its persons acting in concert hold 5% of a listed target. It proposes another 3%. No exemption applies. What follows?
The combined holding becomes 26% and crosses the regulation 3(1) trigger. Existing combined holding = 18% + 5% = 23%. After acquisition = 23% + 3% = 26%. The required open-offer announcement must be addressed as part of the acquisition process. Remember: Aggregate the acquirer and persons acting in concert when testing the takeover threshold.
Hint Common mistake: Applying the threshold to the acquirer’s account in isolation. Aggregate the relevant concert-party holdings before adding the proposed acquisition.
III-A-108From the practice bank · 9
Due diligence uncovers a material inconsistency between an offer-document claim and verified records. The issuer wants to proceed unchanged. What should the merchant banker do?
The inconsistency must be resolved and the disclosure appropriately corrected rather than knowingly proceeding with an unsupported material claim. Remember: Material contradictory evidence must change the review outcome, not be ignored.
Hint Common mistake: Allowing commercial pressure or issue demand to override due diligence. Consider the professional response to evidence contradicting a material claim.
III-A-109