Brokers to the issue
Also written Broker to the issue
Stock exchange members appointed in a public issue to collect application forms and bids from investors, and paid a commission based on what they collect.
In plain language
A public issue needs somebody at ground level to actually take applications from investors. That is the job of brokers to the issue.
They are members of a stock exchange, appointed by the lead manager as part of the pre-issue work, alongside the registrar, bankers and underwriters. Their job is narrow: collect the bid or application form, make sure it comes with a payment instrument, and pass it on. For this, they earn a commission based on their collection.
How it works
The workbook groups brokers to the issue with syndicate members and other designated intermediaries under one heading, because in a book-built issue the same broker network that collects applications also places the bids on the electronic bidding platform. The lead manager's pre-issue checklist specifically requires ensuring that the mandatory number of bidding centres is covered by the syndicate brokers to the issue, so their reach across cities is itself a regulatory requirement, not just an operational convenience.
Brokers to the issue are paid brokerage and selling commission, and the registrar's pre-issue work includes intimating SCSBs and the syndicate of the processing fees and commission payable to them.
A worked example
Vindhya Cements Ltd's IPO uses 28 brokers to the issue, spread across the cities required by the mandatory bidding-centre norm. One of them, a Jaipur-based brokerage, collects 340 application forms worth a total of Rs 4.7 crore during the issue.
At a commission rate of 0.25% of the amount mobilised, that broker earns Rs 1,17,500 for the collection work, paid out after the registrar reconciles the collected forms against the bid file from the stock exchange.
Why NISM asks about it
Chapter 10, sections 10.1 and 10.4. Expect a question on who appoints brokers to the issue (the lead manager, in consultation with the issuer) and what they are paid for (collection, via commission) rather than for underwriting.
Common exam traps
- Brokers to the issue collect forms; they do not underwrite. Underwriting is a separate commitment, made by lead managers, syndicate members or merchant bankers under an underwriting agreement.
- Coverage of bidding centres is a regulatory requirement, checked by the lead manager before the issue opens — not something left to broker discretion.
- They are paid commission on collection, distinct from the underwriting commission paid for a subscription guarantee.
Check yourself
1.The role and responsibility of each constituent in an issue process is defined by the lead manager. True or false?
- a)False
- b)True
Show the answer
Answer: (a) False
The role and responsibility of each constituent is clearly laid out by SEBI. All constituents who are involved with an issue have to be registered with SEBI under the relevant regulations.
SEBI defines the roles; SEBI registers the players.
What the lead manager does is coordinate, not legislate. The lead manager to the issue is primarily responsible for the issue process, and Chapter 9 records that he is responsible for ensuring that the regulatory requirements of the issue are complied with and for all activities till the issue is listed.
Complying with requirements is not the same as making them.
The other entities involved: the registrar and transfer agents, bankers and brokers to the issue.
Each has its own regulatory source. A banker to an issue is defined in terms of SEBI (Bankers to an Issue) Regulations, 1994; the R&T agent is governed by the RTA Regulations of Chapter 6; a syndicate member is an intermediary registered with SEBI and who is permitted to accept bids, applications and place orders; and the registrar's ASBA duties are specified in the circular issued by SEBI on ASBA process.
Even the appointment of the registrar is a joint act, not a unilateral one: R&T agents are appointed by the issuer in consultation with the lead manager to the issue and enter into an agreement detailing their responsibility in the issue work.
Appointed by the issuer, in consultation with the lead manager — and their duties then flow from SEBI's regulations and that agreement.
The pattern matches Chapter 6's account of SEBI's function: regulating market intermediaries through registration and supervision is a primary function of the securities market regulator.
2.The Register of Members and Allotment Registers are prepared by:
- a)Registrar and Transfer Agents
- b)Lead Managers
- c)Bankers to an Issue
- d)Stock Brokers
Show the answer
Answer: (a) Registrar and Transfer Agents
Both appear in the registrar's own list of registers.
Prepare the following registers and other data: i. Top 50/100 shareholders (for the Stock Exchanges) ii. Allotment registers iii. Register of members iv. Index of members; v. Return of Allotment (for the Registrar of Companies) vi. Cross Reference Register vii. Postal journal for documents mailed viii. Number of Equity Shares to be allotted against each valid Bid and the list of successful Bidders ix. Details of rejected Bids.
Nine items, and record-keeping is what an R&T agent exists for — Chapter 6 defines the role as being for maintaining the records of holders of securities issued by such body corporate and to deal with all matters connected with transactions in such securities.
Option B names the coordinator. The lead manager is primarily responsible for the issue process but does not maintain the issuer's registers.
Option C names a money-handler. A banker to an issue carries out acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants.
Option D names a collector of forms. Brokers to the issue are appointed to facilitate the collections of application forms and bids.
Note what the ninth register is for: details of rejected Bids, if any, along with reasons for rejection and details of unsuccessful Bids, if any, to enable the Bankers to the Offer or the SCSBs to refund the amount or unblock the relevant bank accounts.
The registrar's records drive everyone else's actions.
And it must keep them permanently accurate: it shall keep accurately, at all times, the electronic records relating to Bids received from all SCSBs, the Designated Intermediaries and the BRLMs.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Banker to an issueA scheduled bank or other SEBI-specified banking company that accepts application and allotment monies, refunds application money and pays dividend or interest warrants for an issue.
- Confirmation Allocation NoteThe intimation an anchor investor or a fixed-price applicant receives confirming the shares allotted to them in a public issue — the allotment counterpart to a refund order.
- Syndicate memberA SEBI-registered intermediary permitted to accept bids and applications in a public issue and to act as an underwriter for it — the regulatory role behind the general term "broker to the issue".
- UPI mandateThe block-fund authorisation a retail investor confirms in a UPI app to apply for a public issue, for values up to Rs 5 lakh — accepted by 5 p.m. on issue-closing day, unblocked within T+2 days if not allotted.
- Share Escrow AccountThe account a registrar opens for selling shareholders in an offer for sale, holding the shares to be sold before the issue opens — distinct from the cash escrow account for the public offer.
- IPO gradingThe requirement that an unlisted company's IPO be graded by an approved credit rating agency before the issue — a pre-issue checklist item the workbook states without specifying a grading scale.