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NISM Series IX Merchant Banking: Chapter 3 – Registration, Code of Conduct & General Obligations (Short Notes)

12 Apr 2026 • NISM-Series-9: Merchant Banking Mock Tests

NISM Series IX Merchant Banking: Chapter 3 – Registration, Code of Conduct & General Obligations (Short Notes)

Chapter 3 covers the operational framework for merchant bankers in India — who qualifies, how they register, what fees they pay, and what conduct is expected of them. This chapter is very important for the NISM Merchant Banking Certification Exam as it contains several specific numbers and facts that are frequently tested.

Also Read: Chapter 2 – Introduction to Merchant Banking | NISM Series IX Free Mock Test Activities Covered Under Merchant Banking

As per the SEBI (Merchant Bankers) Regulations, 1992, a body corporate (other than an NBFC – Non-Banking Financial Company) can undertake merchant banking activities. The specific activities carried out by a registered merchant banker include:

  • Managing the public issue of securities
  • Underwriting the public issue
  • Managing/advising on international debt/equity offerings (GDRs, ADRs, FCCBs)
  • Private placement of securities
  • Primary/satellite dealership of government securities
  • Corporate advisory services (mergers, takeovers, buybacks)
  • Stock broking
  • Advisory services for projects
  • Syndication of domestic loan offerings
  • International financial advisory services

Important: An NBFC cannot act as a merchant banker. Only body corporates (companies) can register as merchant bankers.

Who Can Be a Merchant Banker?

A merchant banker who has been granted a certificate of registration by SEBI can carry on merchant banking activities. Additionally, a merchant banker who has been granted a certificate to act as a primary or satellite dealer by RBI may carry on such business as permitted by the Reserve Bank of India.

Categories of Merchant Bankers

There is currently only one operative category of merchant bankers as per SEBI regulations:

Category I Merchant Banker – Authorised to:

  • Carry on any activity of issue management, which includes preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers, and final allotment and refund of subscriptions
  • Act as adviser, consultant, manager, underwriter, portfolio manager

Note: Earlier SEBI had Categories I, II, III, and IV, but the regulations have since been amended and only Category I remains the operative category for registration purposes.

Eligibility Criteria for Registration as a Merchant Banker

An applicant seeking registration as a merchant banker must comply with the following requirements:

Capital Adequacy Requirement

As per Regulation 7 of the SEBI (Merchant Bankers) Regulations, a merchant banker must have a net worth of not less than ₹5 crore. This is a mandatory and continuous requirement — the merchant banker must maintain this net worth at all times.

Fit and Proper Person Criteria

The applicant and its key personnel must meet SEBI's criteria for being a "fit and proper person." This includes:

  • No criminal or regulatory proceedings against the applicant
  • Integrity and good financial standing
  • Competence and track record in the relevant business

Registration Fees, Renewal Fees, and Validity

Once SEBI is satisfied that the applicant is eligible, it grants a certificate of registration. The merchant banker must pay the fees within 15 days of receipt of intimation from SEBI.

Registration Fee

Every merchant banker is required to pay a registration fee of ₹20 lakh.

Renewal Fee

To keep the registration in force, a merchant banker must pay a renewal fee of ₹9 lakh every three years, from the sixth year onwards from the date of grant of the initial certificate of registration.

Memory Tip: Registration Fee = ₹20 lakh (one-time) | Renewal Fee = ₹9 lakh every 3 years (from year 6 onwards)

Conditions of Registration

A SEBI-registered merchant banker must fulfil the following ongoing conditions:

  • Obtain SEBI's prior approval for any change in control of the merchant banking entity
  • Pay registration fees as prescribed within stipulated timelines
  • Address investor complaints within 21 days and keep SEBI informed
  • Maintain required capital adequacy (net worth of ₹5 crore) at all times
  • Comply with all SEBI regulations related to its activities
  • Notify SEBI promptly of any changes in registration details
  • If acting as an underwriter, sign a valid agreement with the concerned body corporate and follow relevant SEBI rules

Code of Conduct for Merchant Bankers

The Code of Conduct for Merchant Bankers under SEBI regulations sets high standards of professional behaviour. Key principles include:

Integrity and Fairness

  • Act in the best interests of investors at all times
  • Maintain high standards of integrity, professionalism, and fairness
  • Avoid any misrepresentation or exaggerated claims in communications

Due Diligence and Disclosure

  • Operate with due diligence and provide accurate and adequate disclosures
  • Timely redressal of investor grievances is mandatory
  • Maintain confidentiality of client information

Conflict of Interest

  • Resolve conflicts of interest fairly and transparently
  • Provide clients with unbiased advice — not influenced by personal interests

Internal Controls and Compliance

  • Maintain internal controls to prevent fraud and ensure operational integrity
  • Comply with all SEBI regulations
  • Disclose any legal actions or material changes to SEBI promptly

Prohibited Activities

  • Must not engage in insider trading or market manipulation
  • Must not create false markets
  • Employees offering public investment advice must disclose relevant interests

Underwriting Ethics

  • As underwriters, merchant bankers must be transparent about their commitments
  • Must avoid unfair competition or misrepresentation in the market

General Obligations and Responsibilities of Merchant Bankers 1. Exclusive Business Focus

Merchant bankers must be exclusively involved in securities market-related business, unless they are a bank or public financial institution. This prevents conflicts arising from engagement in unrelated businesses.

2. Record Maintenance

Proper maintenance of financial records and due diligence documentation for a minimum of five years is mandatory. This includes all records related to issues managed.

3. Financial Reporting

Merchant bankers must submit half-yearly unaudited financial results to SEBI. Any deficiencies reported by auditors must be promptly rectified.

4. Lead Manager Responsibilities

Lead managers bear primary responsibility for:

  • Disclosures in offer documents
  • Allotment and refund processes
  • Ensuring their role is clearly defined in offer documents
  • Not associating with unregistered merchant bankers
  • Not lead managing issues where conflicts of interest exist (except for marketing role)

5. Minimum Underwriting Obligation

A minimum underwriting obligation is mandatory for registered merchant bankers. For SME IPOs, the lead manager must underwrite at least 15% of the issue.

6. Prohibition on Trading in Client Securities

Merchant bankers are prohibited from trading in securities of client companies based on unpublished price-sensitive information. Any securities acquired during the course of business must be reported to SEBI within 15 days, or quarterly if related to underwriting activities.

7. Compliance Officer

Each merchant banker must appoint a compliance officer who is responsible for:

  • Monitoring adherence to securities laws and SEBI regulations
  • Promptly reporting any non-compliance to SEBI
  • Ensuring deficiencies noted in offer documents are not repeated

Redressal of Investor Grievances and SCORES What is SCORES?

SCORES (SEBI Complaints Redress System) is a centralised, web-based platform introduced by SEBI via a circular in 2011 for handling investor complaints against listed companies and registered intermediaries including merchant bankers.

Features of SCORES

  • Online submission, tracking, and resolution of investor complaints
  • Real-time access to complaint status and Action Taken Reports (ATRs)
  • Merchant bankers receive login credentials and must check SCORES daily
  • Must respond promptly to complaints and submit ATRs

What SCORES Does NOT Handle

SEBI does not entertain the following through SCORES:

  • Vague or incomplete complaints
  • General suggestions (not actionable complaints)
  • Price dissatisfaction (market-related losses)
  • Private agreement disputes (not securities law violations)
  • Issues with private offers (unlisted companies)
  • Complaints against unlisted or defunct companies
  • Matters already under litigation
  • Matters under other regulators (RBI, IRDA, MCA)

Key Numbers to Remember for NISM Series IX Exam

Requirement Amount/Period
Minimum Net Worth (Capital Adequacy) ₹5 crore
Registration Fee ₹20 lakh
Renewal Fee ₹9 lakh every 3 years (from year 6)
Time to pay registration fees 15 days from receipt of intimation
Investor complaint redressal time 21 days
Record maintenance period Minimum 5 years
Reporting of securities acquired Within 15 days (or quarterly for underwriting)
SME IPO underwriting obligation At least 15% of the issue

Frequently Asked Questions – NISM Series IX Chapter 3 What is the minimum net worth required to register as a merchant banker?

As per Regulation 7 of the SEBI (Merchant Bankers) Regulations, the minimum net worth required is ₹5 crore. This must be maintained at all times.

What is the registration fee for a merchant banker?

The registration fee is ₹20 lakh. Renewal fees are ₹9 lakh every three years from the sixth year of registration.

Can an NBFC register as a merchant banker?

No. As per SEBI (Merchant Bankers) Regulations, 1992, only body corporates other than NBFCs can undertake merchant banking activities and register with SEBI as merchant bankers.

What is SCORES?

SCORES is the SEBI Complaints Redress System — a centralised online platform introduced in 2011 for filing and tracking investor complaints against listed companies and SEBI-registered intermediaries.

Within how many days must investor complaints be addressed?

As per the conditions of registration, investor complaints must be addressed within 21 days, and SEBI must be kept informed of the status.

Preparing for the NISM Series IX Exam? Take our Free Mock Test for NISM Merchant Banking and check how well you've understood Chapter 3. Visit NISM Study Material for more resources.

Next Chapter: Chapter 4 – Issue Management: Important Terms