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Unit study guide · NISM Series IX

Registration, Code of Conduct & General Obligations of Merchant Bankers in India

20 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

What must a person obtain before acting or holding itself out as a merchant banker?

A SEBI registration certificate is required before acting or holding oneself out as a merchant banker. Remember: A client mandate does not substitute for regulatory registration.

Hint Common mistake: Assuming incorporation automatically authorises merchant-banking services. Separate forming a business from obtaining permission for its regulated activity.

IX-036

From the practice bank · 2

Which form is prescribed for an application for merchant-banker registration?

Form A is the prescribed application form under Regulation 3(2). Remember: The application form and the registration certificate are different documents.

Hint Common mistake: Confusing the certificate format with the application format. Distinguish the application submitted from the certificate later issued.

IX-037

From the practice bank · 3

Under the revised category framework, which merchant-banker category can undertake all permitted activities?

Category I can undertake all permitted activities under the revised registration framework. Remember: Category permissions must be read from the current regulations.

Hint Common mistake: Applying historical four-category descriptions to the revised framework. Use the revised framework rather than historical category descriptions.

IX-038

From the practice bank · 4

Which schedule contains the merchant bankers’ Code of Conduct under their registration regulations?

Schedule III contains the Code of Conduct that merchant bankers must follow under Regulation 13. Remember: The Code of Conduct is part of the merchant-banker regulatory framework.

Hint Common mistake: Confusing the forms, fees and conduct schedules. Locate the schedule specifically referenced by the conduct obligation.

IX-039

From the practice bank · 5

Under the revised definition, what minimum financial-market experience must a designated principal officer have?

The designated principal officer must have at least five years of financial-market experience under the revised definition. Remember: The principal-officer role has a specific minimum experience requirement.

Hint Common mistake: Assuming a designation alone satisfies the eligibility definition. Focus on the experience requirement in the current principal-officer definition.

IX-040

From the practice bank · 6

What minimum net worth applies to a fresh Category I merchant-banker applicant under the revised framework?

A fresh Category I applicant must meet the revised minimum net worth of ₹50 crore. Remember: Fresh applicants and existing registrants in transition must not be treated as identical cases.

Hint Common mistake: Applying an existing registrant’s transitional threshold to a fresh application. Distinguish a new applicant from an existing registrant using a transition period.

IX-041

From the practice bank · 7

A Category II merchant banker proposes managing a public equity issue for main-board listing. Is this within its revised category permissions?

The activity is excluded because Category II cannot undertake public equity issues proposed for main-board listing. Remember: Category II has a specific main-board public-equity exclusion, not an advice-only restriction.

Hint Common mistake: Either ignoring the exclusion or wrongly describing Category II as advisory-only. Read the precise exclusion without adding a broader restriction.

IX-042

From the practice bank · 8

How long does a merchant banker’s registration certificate remain valid under Regulation 8(2)?

The registration certificate remains valid unless it is suspended or cancelled under the regulations. Remember: NISM certification validity and merchant-banker registration validity are separate matters.

Hint Common mistake: Applying an examination certificate’s expiry period to SEBI registration. Do not confuse a professional examination certificate with intermediary registration.

IX-043

From the practice bank · 9

A merchant banker falls below its applicable minimum net worth. What restriction applies until it meets that requirement again?

The merchant banker cannot take up fresh business under the permitted activities until it meets the applicable net-worth requirement. Remember: Capital adequacy affects the ability to accept new mandates.

Hint Common mistake: Assuming a temporary capital shortfall has no immediate business consequence. Focus on taking on new work while the capital shortfall continues.

IX-044

From the practice bank · 10

Which framework does Regulation 6A reference for assessing whether a merchant-banker applicant is fit and proper?

Regulation 6A references Schedule II of the SEBI (Intermediaries) Regulations, 2008 for the fit-and-proper assessment. Remember: Eligibility can depend on a cross-reference to another regulatory framework.

Hint Common mistake: Looking only at the merchant-banker fee or conduct schedules. The fit-and-proper assessment refers to a cross-intermediary framework.

IX-045

From the practice bank · 11

Within how many days must a merchant banker redress an investor grievance under Regulation 28C(1)?

The merchant banker must redress the grievance within 21 calendar days from receipt under Regulation 28C(1). Remember: A grievance deadline must be read with its specified day-count convention.

Hint Common mistake: Replacing calendar days with trading or working days. Check both the number and whether weekends count.

IX-046

From the practice bank · 12

A merchant banker discovers a material personal interest that conflicts with a client mandate. Which response follows the conduct framework?

The merchant banker should disclose and appropriately manage the conflict under the Code of Conduct. Remember: Conflicts require transparent handling rather than silent acceptance.

Hint Common mistake: Assuming an undisclosed conflict becomes harmless when the client pays the fee. Consider what the client needs to know to assess the adviser’s position.

IX-047

From the practice bank · 13

A lawful demand requires client information held by a merchant banker. The client has not consented. How does the confidentiality rule apply?

Disclosure required by law is an exception to the prior-permission requirement for confidential client information. Remember: Confidentiality does not authorise ignoring a legal disclosure requirement.

Hint Common mistake: Treating confidentiality as absolute even when disclosure is legally required. Distinguish a legal disclosure obligation from voluntary sharing.

IX-048

From the practice bank · 14

Which certification combination is required for the compliance officer of a fresh merchant-banker applicant under the revised circular?

The fresh applicant’s compliance officer must hold both NISM Series IX and NISM Series III-A certifications under the revised circular. Remember: The compliance-officer requirement combines activity-specific and compliance certifications.

Hint Common mistake: Assuming any two securities-market certifications meet the specified requirement. Match both merchant-banking knowledge and non-fund compliance knowledge.

IX-049

From the practice bank · 15

A business head prevents the compliance officer from independently checking a proposed mandate. Which conduct requirement is most directly affected?

The conduct requirement is affected because the compliance officer must have adequate freedom and powers to discharge the role. Remember: A compliance role must be supported with practical authority and independence.

Hint Common mistake: Treating appointment of a compliance officer as sufficient without enabling the work. Think about whether the control function can actually perform its job.

IX-050

From the practice bank · 16

A fresh Category II applicant has ₹10 crore net worth and ₹2 crore liquid net worth. Which capital requirement is unmet?

The applicant falls short of the ₹2.5 crore Category II liquid-net-worth minimum even though it meets the ₹10 crore net-worth minimum. Remember: Meeting net worth does not automatically satisfy liquid net worth.

Hint Common mistake: Treating the two capital requirements as the same test. Test net worth and liquid net worth separately for the applicant’s category.

IX-051

From the practice bank · 17

An existing merchant banker plans its Category I transition with ₹25 crore net worth and ₹6.25 crore liquid net worth. Which capital phase do these figures meet?

These figures meet Category I Phase I, while the final Phase II requires ₹50 crore net worth and ₹12.5 crore liquid net worth. Remember: Existing registrants must plan for both transitional capital milestones.

Hint Common mistake: Assuming the first transitional threshold is the permanent final requirement. Distinguish the first transitional milestone from the final milestone.

IX-052

From the practice bank · 18

Eligible unencumbered assets have book values of ₹4 crore cash and ₹10 crore government securities. What liquid value results after the prescribed asset haircuts?

The liquid value is ₹13 crore because cash has a zero haircut and government securities have a 10% haircut. Cash value = ₹4 crore. Government-securities value = ₹10 crore × 90% = ₹9 crore. Total = ₹13 crore, assuming these are the only relevant assets and no further adjustments apply. Remember: Liquid-net-worth computation depends on eligible assets after their prescribed haircuts.

Hint Common mistake: Applying one haircut to the entire portfolio instead of the asset-specific rates. Apply the appropriate haircut to each asset class separately.

IX-053

From the practice bank · 19

A merchant banker has ₹15 crore liquid net worth and ₹260 crore underwriting obligations. Under the revised ceiling, how much additional capacity remains?

Additional capacity is ₹40 crore under the revised liquid-net-worth ceiling. Total ceiling = 20 × ₹15 crore = ₹300 crore. Remaining capacity = ₹300 crore − ₹260 crore = ₹40 crore, assuming no other obligations or restrictions. Remember: Available underwriting capacity is the permitted total less existing obligations.

Hint Common mistake: Using total capacity as though none of it is already committed. Find the total permitted ceiling before deducting commitments already outstanding.

IX-054

From the practice bank · 20

A merchant banker proposes outsourcing offer-document preparation and due diligence, while reviewing only the final summary. What does the current outsourcing framework require?

These core activities must be retained because the outsourcing framework excludes due diligence and offer-related document preparation from outsourcing. Remember: Core merchant-banking duties cannot be delegated away through outsourcing contracts.

Hint Common mistake: Assuming a vendor’s indemnity makes a prohibited outsourcing arrangement acceptable. Distinguish support services from activities central to the regulated role.

IX-055