The SEBI (Underwriters) Rules and Regulations of 1993 were established to regulate the underwriting practices in India’s capital market, covering the registration, capital adequacy, and responsibilities of underwriters. However, by the early 2000s, the capital market had rapidly grown and increasingly integrated with global markets. These developments exposed certain limitations of and outdated provisions in the original regulations, prompting the Securities and Exchange Board of India (SEBI) to initiate a comprehensive review. In October 2002, SEBI formed a committee under the chairmanship of Vallabh Bhansali, Director, Enam Financial Consultants Pvt. Ltd., to examine the effectiveness of the existing rules and propose updates to better align them with the current market environment. Members included Vimal Bhutani (Vice President, SBI Capital Markets Ltd); B. Madhuprasad (Managing Director, Keynote Corporate Services Ltd); Dipti Neclakantan (Executive Director, J M Morgan Stanley Pvt. Ltd.); Vishwavir Ahuja (CEO, Bank of America); and T. R. Ramaswami (CEO, AMBI).

The committee’s review revealed several critical issues that needed to be addressed to improve the robustness of the underwriting framework. It found that the existing definition of “underwriting” was too narrow and did not adequately reflect the realities of modern capital markets. Specifically, it was limited to the act of subscribing to securities and excludedoffers for sale, which is a common practice in the industry. The committee recommended broadening the definition to include this practice, thereby aligning it with the Companies Act and SEBI’s model underwriting agreement.

Another significant finding concerned capital adequacy requirements for underwriters. The committee noted that while the minimum net worth for underwriters had been set at Rs. 20 lakhs since 1993, the requirements for other financial intermediaries, such as merchant bankers and brokers, had increased substantially. To ensure that underwriters could meet their financial obligations and to contribute to a safer capital market, the committee recommended raising the minimum-net-worth requirement to Rs. 100 lakhs. Additionally, it proposed a more explicit method for calculating net worth, emphasizing liquidity and tangible assets, and suggested linking the limit on underwriting obligations to underwriters’ net worth, with specific leverage slabs to mitigate risks.

The committee also addressed operational inefficiencies in underwriting, particularly concerning the timing of subscriptions in case of devolvement. It considered the existing time frames inconsistent with current market practices. The committee recommended shortening and standardizing these time frames to improve the efficiency and reliability of underwriting. Furthermore, it emphasized the importance of timely payment of underwriting commissions and proposed that commissions be paid after listing approvals but before trading permissions to ensure that underwriters are compensated promptly.

SEBI accepted several key recommendations aimed at modernizing the 1993 rules and regulations. These included broadening the definition of “underwriting,” raising the minimum-net-worth requirement, and introducing a more liquidity-focused method for computing net worth. SEBI also accepted recommendations to link underwriting obligations to net worth, shorten time frames for subscription in case of devolvement, and ensure timely payment of underwriting commissions after listing approvals.

In conclusion, the committee’s recommendations sought to modernize the SEBI (Underwriters) Rules and Regulations of 1993, addressing outdated provisions and aligning the framework with the needs of an evolving capital market. By strengthening the regulatory structure and enhancing market efficiency, the committee aimed to support a more resilient and transparent financial ecosystem in India.