Syndicate member
Also written Syndicate members
A 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".
In plain language
The workbook has a precise, regulatory definition for one of the roles in a public issue: a syndicate member is "an intermediary registered with SEBI and who is permitted to accept bids, applications and place orders with respect to the issue and carry on the activity as an underwriter."
The key word is underwriter. A syndicate member does not just collect forms — it can also commit, in advance, to subscribe to shares that are left unsold.
How it works
The R&T agent enters into a Syndicate Agreement with the company, the selling shareholders and the BRLMs, under which members of the syndicate fulfil their underwriting obligations, and a separate Underwriting Agreement with the same parties. The registrar's role under these agreements is to provide the necessary notices and perform such functions as are agreed.
In a book-built issue, bids can be placed with syndicate members, registered stock brokers, SCSBs, non-syndicate registered brokers, collecting depository participants and RTAs, but the syndicate member specifically carries the underwriting obligation among these — underwriting is mandatory for the issue as a whole, and it is the syndicate members, lead managers, merchant bankers or stock brokers who sign the underwriting agreement.
A worked example
Ambika Pharma Ltd's book-built IPO is underwritten to the full extent of the 90% minimum subscription required by SEBI's regulations. Four SEBI-registered syndicate members each commit to subscribe up to Rs 25 crore if the public does not.
The issue is subscribed 82% by the public. Under their underwriting agreement, the syndicate members together take up the shortfall — the remaining 8% of the net offer — in the proportions they agreed to at the time of signing, and are paid an underwriting commission for having carried that risk regardless of whether they are called upon.
Why NISM asks about it
Chapter 9, section 9.6 (Underwriting) and Chapter 10, footnote defining a syndicate member. Expect a question that tests whether a candidate can tell a syndicate member (underwriter) apart from a broker to the issue or an SCSB (which only collect and block funds).
Common exam traps
- A syndicate member underwrites; an ordinary broker to the issue does not. The definition turns on the underwriting permission, not on collecting forms.
- Underwriting is mandatory for the issue, but the minimum subscription condition itself does not apply to an offer for sale.
- Do not confuse the Syndicate Agreement (governs underwriting obligations, with the registrar's role in it) with the Underwriting Agreement itself — the workbook names them as two separate documents.
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.Who may use the UPI mechanism in a public issue, and up to what application value?
- a)All investors, without limit
- b)Retail individual investors applying through syndicate members, registered stock brokers, R&T agents and depository participants, for application values up to Rs. 5 lakh
- c)Qualified institutional buyers only, up to Rs. 10 crore
- d)Anchor investors, without limit
Show the answer
Answer: (b) Retail individual investors applying through syndicate members, registered stock brokers, R&T agents and depository participants, for application values up to Rs. 5 lakh
SEBI... has introduced the use of Unified Payment Interface (UPI) as a payment mechanism with Application Supported by Blocked Amount (ASBA) for applications in public issues by retail individual investors through intermediaries (Syndicate members, Registered Stock Brokers, Registrar and Transfer Agents and Depository Participants) in a phased manner from January 1, 2019.
The UPI mechanism for public issues is available for application value upto Rs. 5 lakhs.
Two limits — the class of investor and the amount.
And the boundary is enforced: the Sponsor Bank ensures that applications by only Retail Individual Investors shall be made through the UPI mechanism.
Which disposes of options C and D. Anchor investors do not block at all — they pay into the escrow account managed by the bankers to the issue... appointed by the Issuer for Anchor Investors.
Note the four intermediaries listed — and that the Registrar and Transfer Agents are among them.
Chapter 7 records the same rule from the debt side: individual investors applying through intermediaries... where the application amount is upto Rs. 5 Lakh, shall only use UPI for the purpose of blocking of funds.
Why UPI was introduced: to increase efficiency, eliminate the need for manual intervention at various stages, and reduce the time duration from issue closure to listing.
How the investor authorises it: upon validation of mandate fund block request by the investor by entering his UPI PIN, the funds would get blocked in investors account — and that same authorisation permits the later debit.
Other routes remain open to those outside the UPI limits. Chapter 7 notes that individual investors shall continue to have the choice of availing other modes (viz. through SCSBs, Stock Exchange Platform and 3-in-1 account).
3.The due diligence certificate in the issue process is signed by:
- a)Lead Managers
- b)Registrar and Transfer Agents
- c)Stock Brokers
- d)SEBI
Show the answer
Answer: (a) Lead Managers
Among the lead manager's pre-issue steps is to sign the due diligence that all the regulatory requirements are complied with.
It follows from his overall responsibility: the company has to appoint a merchant banker who will be the lead manager of the issue. The lead manager is responsible for ensuring that the regulatory requirements of the issue are complied with. The lead manager is responsible for all activities till the issue is listed.
Responsible for compliance, so he certifies compliance.
Option B has substantial duties but not this one. The R&T agent is one of the parties the lead manager appoints — appoint R&T agents, bankers, syndicate brokers, brokers and underwriters to the issue — and later must collect the bid data from Stock Exchanges and reconcile the data received from the SCSBs and obtain a final collection certificates, besides joining in finalising the basis of allotment.
Option D confuses regulator with regulated. SEBI receives the DRHP and issues observations/comments; it does not certify the issuer's compliance.
Option C names a distribution channel. Brokers accept bids — bids can also be placed with the syndicate members who are brokers of the exchange, SCSBs, Non Syndicate Registered Brokers, Collecting Depository Participants and RTAs.
The lead manager's other pre-issue tasks: obtain in-principle approval of the recognised stock exchanges; cover the mandatory number of bidding centres; get an unlisted company's IPO graded by an approved credit rating agency; enter into agreements with depositories; file DRHP with SEBI; file the RHP with the Registrar of Companies; issue advertisements in national papers; and ensure every application form is accompanied by an abridged prospectus.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Brokers to the issueStock exchange members appointed in a public issue to collect application forms and bids from investors, and paid a commission based on what they collect.
- 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.
- 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.
- UnderwriterAn institution that agrees, under an underwriting agreement, to subscribe to the part of a public issue that investors do not take up — and is paid a commission for standing behind the issue.