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Merchant Banking Operations in Bangladesh:

Although in the U.S., merchant banks offer a wide range of activities, including portfolio management, credit syndication, acceptance credit, counsel on mergers and acquisitions, insurance, etc. in case of our country, these services may differ. In Bangladesh, a merchant bank can perform multiple operations including underwriting, issue management, portfolio management, merger & acquisition etc. The merchant banking activities were largely fostered by two distinct developments: Merger &acquisition activities and increased demand for venture capital. 1. Underwriting: Underwriting operation is one of the important functions of a merchant banker by which it can increases the supply of stock/shares and debentures in the market. It is an arrangement whereby the underwriter undertakes to subscribe the unsubscribed portion of shares/debentures offered by any public limited company. This encourages the prospective issuers to offer shares/debentures to the public for subscription and they can raise funds from the public. One or more investment banking firms may underwrite public offerings. The underwriters have the responsibility of pricing new shares and selling them to investors. The company pays the underwriters a fee. Underwriter also provides advice to a company issuing securities or to an issue manager. Before granting authority to17 non-bank financial institutions in 1997 to conduct merchant banking business in Bangladesh under the Securities and Exchange (Merchant Bankers and Portfolio Manager) Regulations 1995, specialized financial institutions, and the nationalized commercial banks and insurance companies were the key underwriters in the country's securities market. 2. Issue Management: Issue Management function of merchant Banking helps capital market to increase the supply of securities. Being a Issue Manager these FIs provide assistance to the Private Limited Companies intended to be converted into Public Limited Companies by way of obtaining necessary permission from the relevant authorities, preparing prospectus for public issue of shares and debentures, involving itself in the collection of application money, scrutiny of applications, arranging for lottery relating to allotment, if required, allotment of shares and debentures, refund of application money etc.

3. Portfolio Investment Management Services: Portfolio means a collection of investments owned by an investor, an institution or a mutual fund and portfolio manager means the entity responsible for investing a mutual fund's assets, mapping out its investment strategy and managing day-to-day securities trading. Portfolio management is the process of building, managing and assessing an inventory of company products and projects.6 One of the most important functions of merchant banking is to provide Portfolio Management service to the customer. Basically, Portfolio Management Services program has four different wings to provide portfolio investment management services. The SEC allowed banks to launch merchant banking operation through opening of separate wing mainly to deal in portfolio investment on behalf of clients' account in order to channel pool of investors' fund into the stock market in an organised manner. 4. Merger and Acquisition: The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Merchant banking helps to negotiate companies in this case. Other functions that differ from FIs to FIs are Factoring, Asset Securitization, OTC Market, Capital Re-Structuring etc. In addition these FIs can also perform the activities of: Project counseling Lending to stock investors Pre-Investment Studies, etc Source:

Laws and Regulations:

Under the SEC merchant banker licensing rules, a merchant bank working only as issue manager has to submit at least a documented proposal for an initial public offer of a company, while a merchant bank licensed to act only as portfolio manager has to form at least five new portfolios of its clients besides its own, and a merchant bank working as a full-fledged

merchant bank has to manage one IPO, to be under writer of two issues and form five new portfolios of its clients besides its own in a calendar year. A full-fledged merchant bank has to perform at least two operations among the three including managing portfolio in a calendar year.

Customers of Merchant banking:

In our country, the customers of merchant banking are as follows in general: 1. Any Bangladeshi over 18 years of age 2. 3. Any Corporate body (ies) NRB (s) through NITA Account

The Roles of Merchant Banking in Bangladesh:

If FIs get the license, apart from merchant banking, these will be able to ensure a huge liquidity supply to the stock market. The capital market has been in a liquidity crisis since the introduction of direct listing rules in 2006, as five state-owned enterprises and two privately-run companies raised thousands of crores of taka from the market, according to experts. To face such a crisis, more merchant bankers should be allowed to operate in the market, said an expert. The necessity of issuing merchant banking license by the Securities and Exchange Commission (SEC) is also seen by some experts as an option to lessen the alleged dominance of the existing merchant banks in the stock market. These will also be very helpful for the investors and firms.

Merchant banks can contribute greatly for the development of more authenticated and structured capital market and can also help to form a more stable economy. The report has been focused to present the important issues of merchant banking sector of Bangladesh within the boundary of three merchant bankers. It has not been possible to present all the factors along with problems and prospects within this limited time frame and it needs more expertise to analyze the real scenario. It may not showcase the proper scenario of total merchant banking conditions. The findings may get biased by the interviewer information

compared to the real scenario of market. It was very difficult to give recommendations depending on three merchant banks. In spite of these reasons, dedicated efforts are given to prepare the report, but some mistakes can occur, which are unintentional due to lack of knowledge on certain areas and also because of time limitations.