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Underwriting commission as per sebi

Anusha (Article Trainee) (88 Points)

12 January 2013

Hi,

Can anyone explain me about

i) underwriting commission as per SEBI for shares and debentures

ii) And by default we should calculate commission as per Companies act if the problem is silent...but how would the ceiling as prescribed by SEBI comes in to effect while such calculation is made.

Thank you

Anusha

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Sanket (!..Live to Give..!) (16427 Points)
Replied 12 January 2013

The SEBI has defined the Underwriting as “an agreement with or without conditions tot subscribe to the securities of a body corporate where the existing shareholders of such body corporate or the public do not subscribe to securities offered to them”.

The Underwriter has been defined as “a person who engages in the business of Underwriting of an issue of securities of a body corporate”. The Underwriting is mandatory for the public issue. The stock exchange regulations clearly specify that no stock broker is allowed to underwrite more than 5 per cent of the public issue and the concerned stock exchange should approve the appointment of broker underwriters. Usually the bankers can underwrite upto 10 per cent of the public issue.

The Underwriting Commission cannot be paid on the amounts contributed by promoters, directors, employees and business associates. It is an important element of the primary market. It is appointed by the issuing company in consultation with the merchant bankers. The name of the Underwriter and his obligations should be disclosed in the prospectus. There are a number of financial institutions, commercial banks, insurance companies as well as a number of private companies which provide underwriting.

An Underwriter issue is the safe way of marketing securities and the investors are influenced by the prestige of the underwriters. The issuing companies may appoint one or more of the following parties: (A) Financial Institutions, (B) Brokers, (C) Bankers, (D) Investment Companies, and (E) Trusts.

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