Module 2

MERCHANT BANKING
The word ‘merchant banking’ was originated among the Dutch and Scottish traders. Later on it was
developed and professionalised in the UK and the USA. Now this has become popular throughout
the world.

Meaning and Definition of Merchant Banking

Merchant banking is non-banking financial activity. But it resembles banking function. It is a financial
service. It includes the entire range of financial services.

The term merchant banking is used differently in different countries. So there is no universal
definition for merchant banking. We can define merchant banking as a process of transferring capital
from those who own it to those who use it. According to Random House Dictionary, “merchant bank
is an organization that underwriters securities for corporations, advices such clients on mergers and
is involved in the ownership of commercial ventures. These organizations are sometimes banks
which are not merchants and sometimes merchants who are not bankers and sometimes houses
which neither merchants nor banks”. According to SEBI (Merchant Bankers) Rules 1992, “A merchant
banker has been defined as any person who is engaged in the business of issue management either
by making arrangements regarding selling, buying or subscribing to securities or acting as manager,
consultant advisor or rendering corporate advisory services in relation to such issue management”.
In short, “merchant bank refers to an organization that underwrites securities and advises such
clients on issues like corporate mergers, involving in the ownership of commercial ventures”.

Thus merchant banking involves a wide range of activities such as management of customer
services, portfolio management, credit syndication, acceptance credit, counseling, insurance,
preparation of feasibility reports etc. It is not necessary for a merchant banker to carry out all the
above mentioned activities. A merchant banker may specialise in one activity, and take up other
activities, which may be complementary or supportive to the specialized activity.

In short, merchant banking involves servicing any financial need of the client.

Difference between Merchant Bank and Commercial Bank

Merchant banks are different from commercial banks. The following are the important differences
between merchant banks and commercial banks:

1. Commercial banks basically deal in debt and debt related finance. Their activities are
clustered around credit proposals, credit appraisal and loan sanctions. On the other hand,
the area of activity of merchant bankers is equity and equity related finance. They deal with
mainly funds raised through money market and capital market.

2. Commercial banks’ lending decisions are based on detailed credit analysis of loan proposals
and the value of security offered. They generally avoid risks. They are asset oriented. But
merchant bankers are management oriented. They are willing to accept risks of business.
 3. Commercial banks are merely financiers. They do not undertake project counselling,
corporate counselling, managing public issues, underwriting public issues, advising on
portfolio management etc. The main activity of merchant bankers is to render financial
services for their clients. They undertake project counselling, corporate counselling in areas
of capital restructuring, mergers, takeovers etc., discounting and rediscounting of short-term
paper in money markets, managing and underwriting public issues in new issue market and
acting as brokers and advisors on portfolio management.

Scope of Merchant Banking

The various scope / Features of merchant banking are follows :

1) Growth of New Issues Market :

As the India market is among the largest growing market so the various domestic and foreign
investors are entering the market for doing business. The various types public and private problems
are also arising.

2) Entry of Foreign Institutional Investment :

The is globalization in the Indian capital market. is permission given to the foreign institutional invest
in India as they require the suggestion from merchant banks for the business in India. The various
number of joint venture also need different types of services of Merchant Banks.

3) Changing Policy of Foreign Investment :

There is liberalization in the policy making. The foreign investments need the services Merchant
Banks for project appraisal, financial management, financial re-structuring, etc.

4) Development of Debt Market :

The debt instrument helps in raising large amount of capital for the business. The making of debts
market is also done by merchant banks.

5) Innovations in Financial Instruments :

The innovative financial instrument has increased. The merchant banks are the origin of the
innovative type of financial instruments.

6) Corporate Re-Structuring :

The liberalization and globalization are the reason for the capital structuring. The presence of
competition in f corporate sector is the reason for corporate structuring. The companies also adopt
corporate re-structuring if they want to change their strategies, structure and working.

Types of Merchant Banking

Merchant banks may be classified in the following three categories :

1) Full-Service Global Merchant Banks :

This category of merchant banks are characterized by their world-wide presence and
offering a complete range of services. They are generally large financial entities, the services
of which are availed by big companies, generally global giants.
 Some examples of the full-service global merchant banks are Jefferies, Goldman Sachs, JP
Morgan. Chase & Co., Kotak Investment Banking, etc.

2) Regional Investment Banks :

Regional investment banks, also referred to as 'speciality investment banks', basically cater
to the needs of the clients from a particular region. They possess a specialized acquaintance
of the market of that geographical area, and as such are in a position to offer the services
according to the demands of their clients.

Some examples of this category of merchant banks are SBI Capital Markets, Nomura
Holdings, CLSA, Maple Capital Advisors, ABN Amro, BNP Paribas, Piper Jaffray, Commerz
Bank, Duff & Phelps, etc.

3) Boutique Investment Firms :

Investment banks of small size, operational at a local level covering a limited geographical
area are termed as Boutique Firms. They offer services in respect of specific industries or
products, in which they have an expertise. Their proficiency in the area of advisory services,
like merger and acquisition makes them much in demand for specific deals. The services
offered by them are more in the nature of personalized ones, and at times they try to serve
as a partner of their clients instead of being impersonal advisors.

Merchant Banking Services: Management of Capital Issues

The capital issues are managed are category-1 merchant banker and constitutes the most important
aspects of their services. The public issue of corporate securities involves marketing of capital issues
of new and existing companies, additional issues of existing companies including rights issue and
dilution of shares by letter of offer. The public issues are managed by the involvement of various
agencies i.e. underwriters, brokers, bankers, advertising agency, printers, auditors, legal advisers,
registrar to the issue and merchant bankers providing specialized services to make the issue of the
success. However merchant banker is the agency at the apex level than that plan, coordinate and
control the entire issue activity and direct different agencies to contribute to the successful marketing
of securities. The procedure of the managing a public issue by a merchant banker is divided into two
phases, viz;

• Pre-issue management
• Post-issue management

Pre-Issue Management:

Steps required to be taken to manage pre-issue activity is as follows:-

 1. Obtaining stock exchange approvals to memorandum and articles of associations.
2. Taking action as per SEBI guide lines.
3. Finalizing the appointments of the following agencies:

o Co-manager/Advisers to the issue

o Underwriters to the issue
o Brokers to the issue
o Bankers to the issue and refund Banker
o Advertising agency
o Printers and Registrar to the issue

Functions of Merchant Banker:

1. Advise the company to appoint auditors, legal advisers and broad base Board of Directors
2. Drafting of prospectus
3. Obtaining approvals of draft prospectus from the company’s legal advisers, underwriting
financial institutions/Banks
4. Obtaining consent from parties and agencies acting for the issue to be enclosed with the
prospectus.
5. Approval of prospectus from Securities and Exchange Board of India.
6. Filing of the prospectus with Registrar of Companies.
7. Making an application for enlistment with Stock Exchange along, with copy of the prospectus.
8. Publicity of the issue with advertisement and conferences.
9. Open subscription list.

Post-issue Management:

Steps involved in post-issue management are:-

1. To verify and confirm that the issue is subscribed to the extent of 90% including devolvement
from underwriters in case of under subscription
2. To supervise and co-ordinate the allotment procedure of registrar to the issue as per
prescribed Stock Exchange guidelines
3. To ensure issue of refund order, allotment letters / certificates within the prescribed time limit
of 10 weeks after the closure of subscription list
 4. To report periodically to SEBI about the progress in the matters related to allotment and
refunds
5. To ensure he listing of securities at Stock Exchanges.
6. To attend the investors grievances regarding the public issue

The Merchant Bankers for managing public issue can negotiate a fee subject to a ceiling. This fee is to
be shared by all lead managers, advisers etc. 0.5% of the amount of public issues up to Rs.25 crores
0.2% of the amount exceeding Rs.25crores, if more than one Merchant bankers are managing the
issue.

What is Issue Management in Merchant Banking:

A merchant bank is a company that deals mostly in international finance, business loans for companies
and underwriting. These banks are experts in international trade, which makes them specialists in
dealing with multinational corporations. A merchant bank may perform some of the same services as
an investment bank, but it does not provide regular banking services to the general public. One role
of a merchant bank is to provide financing to large corporations that do business overseas. Assume,
for example, that XYZ Company is based in the United States and decides to purchase a supplier that
is based in Germany. Merchant banker is any person who is engaged in the business of issue
management either by making arrangements regarding selling, buying or subscribing to securities as
manager -consultant, advisor or rendering corporate advisory services in relation to such issue
management in merchant banking.
Pre & Post issue management:

Pre issue management is time bound programme and concerned with following:

1) Issue of shares

2) Marketing, Coordination and underwriting of the issue.

3) Pricing of issues

Post issue management is concerned with following:

1) Collection of application forms and amount received

2) Scrutinizing application

3) Deciding allotment procedure

4) Mailing of share certificates/refund or allotment orders

Purpose behind issue administration:

 ▪ The lifting development in the quantity of open recorded organization

▪ Capacity of open recorded organizations

▪ The troubles emerging due to the regularly expanding SEBI prerequisite.

A developing economy like India offers wide extension for issue administration and the shipper

financiers give their abilities and aptitude to organizations in the administration of capital issues. This

basically goes for using family unit reserve funds into the corporate division through the issue of

corporate securities. Organizations raise stores for the motivations behind financing new

undertakings, extension/modernization/enhancement of existing units and lifting long haul assets for

working capital purposes.

Pre issue structuring:

Pre issue organizing is one of the elements of issue administration which incorporates the

accompanying capacities:

▪ Issue of offers.

▪ Marketing and Coordination.

▪ Underwriting of the issue.

▪ Pricing of issue.

First sale of stock:

A first sale of stock is the primary offer of stock issued by an organization to the general population.

With a generally modest number of investors made up fundamentally of early financial specialists, (for

example, the originators, their families and companions) and expert speculators.

General society, then again, comprises of every other person – any individual or institutional financial

specialist who wasn't required in the beginning of the organization and who is keen on purchasing

offers of the organization. Until the point that an organization's stock is offered available to be

purchased to people in general, the general population can't put resources into it. You can possibly

approach the proprietors of a privately owned business about contributing, however they're not

committed to offer you anything.

Subsequently IPO is a method for giving without end a piece of the organization to the general

population, where people in general get possession in the organization by putting resources into the

type of offers in such organizations. The IPO alternative raises the biggest entireties of cash for the

organization and its initial financial specialists.

How to raise capital with IPO:

Opening up to the world raises a lot of cash for the organization with the goal for it to develop and

extend. Privately owned businesses have numerous alternatives to raise capital –, for example,

▪ Borrowing

▪ finding extra private speculators

▪ Being gained by another organization.

Open issue:

Corporate firms may raise capital by at first offering offers to the general population. The corporate

firms bring capital by issuing up in the essential market.

The issue of stock in an open market as opposed to being secretly subsidized by the organization's

proprietor which won’t be sufficient because of the accompanying reasons:

▪ The business to fire up.

▪ To deliver

▪ Continue running.

By issuing stock publically the investors being open acquire the proprietorship in the organization

however not the controlling element.

Fundamentally it implies people in general claims the organization however don't have control.

The process of open issue:

On the chance that an organization intends to raise capital by issuing stock, it must propose/document

a formal enlistment articulation with the SEBI that gives insights about
 ▪ The business' money related history,

▪ Current money related circumstance,

▪ The proposed open issue

▪ Future projections.

▪ The organization is additionally required to set up a preparatory plan that contains data
indistinct to that of the enlistment articulation for potential financial specialists.

Right issue management:

Rights issue is a profit of membership rights to purchase extra securities in an organization made to

the organization's current security holders. At the point when the rights are for value securities, for

example, shares, in an open organization, it is a non-dilutive ace rate approach to raise capital. Rights

issues are regularly sold through an outline or plan supplement. With the issued rights, existing

security-holders have the benefit to purchase a predefined number of new securities from the

guarantor at a predetermined cost inside a membership period.

Rights issues are helpful for all traded on an open market organizations rather than other more dilutive

financing choices (fundraising where the business or business owner gives up at least some ownership

of the company)

In rights issue the budgetary chief needs to consider the accompanying:

▪ Appoint a merchant chief or intermediary merchant to deal with the offering procedure.

▪ Selling gathering and intermediary merchant support.

▪ Subscription cost per new offer.

▪ Number of new offers to be sold.

▪ The estimation of rights versus exchanging cost of the membership rights.

▪ The impact of rights on the estimation of the present offer.

▪ The impact of rights to investors of record and new investors and rights holders.

Endorsing of issue:

Rights issues might be endorsed. The part of the guarantor is to ensure and guarantee that the assets

sought after by the organization will be raised. The agreement between the financier and the

organization is set out in a formal endorsing understanding. Commonplace terms of an endorsing

require the financier to subscribe for any offers offered yet not taken up by investors. The endorsing

understanding will regularly enable the financier to end its commitments in characterized conditions.

A sub-financier thus sub-guarantees a few or the majority of the commitments of the primary

guarantor; the guarantor passes its hazard to the sub-financier by requiring the sub-guarantor to

subscribe for or buy a bit of the offers for which the guarantor should subscribe in case of a deficit.

Guarantors and sub- guarantors are budgetary establishments, stock-intermediaries, real investors of

the organization or other related or random gatherings.

Financiers additionally research and help the hazard every candidate presents. This creates the market

for securities by consummately valuing danger and setting reasonable premium rates that acceptably

take care of the genuine expense of guaranteeing arrangement holders. On the off chance that a

particular candidate's risk3 is reasoned to be too high, guarantors may abstain from covering it.

ADR / GDR / FCCB - Issue Management:

Indian organizations are given the recompense to issue share to non-inhabitant Indians under FDI

(outside direct speculation) to raise value capital. In the worldwide market by issuing rupee named

offers to an outsider with the end goal of issuing of GDRs/ADRs.

This is realized by the endorsement of the service of back and with reference to the plan for issue of

(FCCB) Foreign Currency Convertible Bonds and Ordinary Shares (Through Deposit Receipt

Mechanism) Scheme and in connection with the directions issued by the Central Government in such

manner.

An organization which does not have the qualification to bring capital up in the Indian market including

organizations perceived by SEBI doesn't pick up qualification towards ADR and GDR.

ADR / GDR / FCCB (Foreign Currency Convertible Bonds) grow extent of speculations for a firm since,

now there are financial specialists from the remote market. This upgrades the capital market and

builds the organization's capital which additionally helps in extension.

 Regulatory Framework of Merchant Banks

Criteria to be fulfilled

A merchant banking company would need to fulfill the following criteria:

• It should be registered with SEBI under section 12 of the SEBI Act 1992;
• It should conduct the business of merchant banking in accordance with rules or regulations
framed by SEBI;
• It should acquire securities only as part of its merchant banking activities;
• It should not be engaged in any other financial activities as mentioned in section 45I(c) of
the RBI Act 1934; and
• It should not accept or hold public deposits.

SEBI (Merchant Bankers), Regulations ,1992 defines Merchant bankers as any person who is engaged
in the business of issue management either by making arrangements regarding selling, buying or
subscribing to securities or acting as manager, consultant ,adviser or rendering corporate advisory
service in relation to such issue management.

Requirements for Merchant Bankers (for Certification)

• Applicant to be a corporate body other than NBFC

• Primary dealers can carryout merchant banking activities provided they do not accept public
deposits
• Necessary infrastructure like office space, equipments and manpower to be present

Requirements for Merchant Bankers

• Applicant/ partner/Director/Principal is not involved in litigation with securities market

• Applicant/ partner/Director/Principal has not been convicted for any offence on moral or
economic ground
• Applicant possesses professional qualification by a recognized institute
• Grant of certificate is of interest to the investors
• Certificate of registration and renewal shall be valid for a period of 3 yrs from the date of
issue to the applicant

Categories of Merchant Banks

Merchant bankers are classified into four categories according to the SEBI (Merchant
Banking) Regulations 1992. These are as follows:

a) Category – I: To carry on any activity relating to issue management and act as adviser,
consultant manager, underwriter and portfolio manager for capital issues.
b) Category – II: To act as adviser, consultant, co-manager, underwriter and portfolio manager
for capital issues.
c) Category – III: To act as underwriter, adviser, and consultant to an issue.
d) Category – IV: To act only as adviser or consultant to an issue.
Weakness of merchant banks / Problems of merchant banks

1) SEBI guidelines have authorised merchant bankers to undertake issue related activities only
with
2) an exception of portfolio management. It restricts the scope of merchant bank activities.

3) SEBI guidelines stipulate a minimum net worth of Rs.1 crore for authorisation of merchant
4) bankers. Small but professional merchant bankers are facing difficulty for adhering such net
worth
5) norms.

6) Non cooperation of the issuing companies in timely allotment of securities and refund
7) application money is another problem of merchant bankers.

8) Unhealthy competition among large number of merchant banks compels them to reduce
their
9) profit margin, commission etc.

10) There is no exact regulatory framework for regulating and controlling the working of
merchant
11) banks in India.

12) Fraudulent and fake issue of share capital by the companies are also posing problems for
merchant banks who act as lead manager or issue manager of such issues

Underwriting of Shares and Debentures

Meaning of Underwriting:
‘Underwriting’ refers to the functions of an under-writer. An under-writer may be an individual, firm
or a joint stock company, performing the under-writing function. Under-writing may be defined as a
contract entered into by the company with persons or institutions, called under-writers, who
undertake to take up the whole or a portion of such of the offered shares or debentures as may not
be subscribed for by the public. Such agreements are called ‘Under-writing agreement’.

A newly formed company enters into an agreement with an under-writer to the effect that he will take
up shares or Debentures offered by it to the public but not subscribed for in fully by the public. Such
an agreement may become necessary when a company issues shares or debentures for the first time
to the public, or subsequently when it is in need of working capital.

When the company does not receive 90 per cent of issued amount from public subscription, within
120 days from the date of opening the issue, the company cannot proceed with allotment. In such a
case, the company must refund the amount of subscription. In the case of a new company, it cannot
obtain a certificate to commence function.
A company is not sure whether the shares or debentures offered for subscription may be taken up by
the public. There arises a risk to ensure the success of issue. Therefore, companies resort to
underwriting in order to ensure that sufficient number of shares or debentures would subscribe for.
Thus, risk-bearing or uncertainty bearing is an important function of an underwriter.

Functions of a Broker in Underwriting:

Broker is a person who helps in subscribing the shares. A broker is one who finds buyers for the shares
or debentures of the company and gets the brokerage on the number of shares or debentures
subscribed by the public through him. Underwriter is different from a broker. An underwriter is a
person who agrees to take a specified number of shares or debentures, in case, not subscribed by the
public.

That is, an underwriter is liable to take up shares in case the public fails to subscribe whereas a broker
is not liable. Underwriter gets underwriting commission and a broker gets brokerage. Underwriter
gives a guarantee whereas a broker does the service of placing the shares.

Thus, the function of an underwriter is of great economic significance since he himself assumes the
risk of uncertainty on behalf of the company making public issue of shares or debentures. A broker,
on the other hand, does not assume any such risk. Underwriting acts as a sort of insurance or
guarantee against the danger of not receiving minimum subscription.

Sub Underwriting:
An underwriter may himself enter into a sub-agreement with other persons, called sub- underwriters,
whereby he transfers a part of his underwriting risk. Just like re-insurance, sub- underwriting helps in
spreading the risk. An underwriter may appoint several underwriters to work under him. However,
the sub-underwriters have no privacy of contract with the company. They get their commission from
the underwriter and are also responsible to him.

Underwriting Commission:
It is lawful for a company to pay commission to an underwriter, subject to the following restrictions,
according to Sec. 76 of the Companies Act of 1956.

1. The payment of commission is authorised by the Article.

2. The commission paid or agreed to be paid does not exceed in the case of shares, 5% of the
price at which the shares are issued or the amount or rate authorised by the Article, whichever
is less.
3. The commission paid or agreed to be paid does not exceed in case of debentures, 2% of the
price at which the debentures are issued or the amount or rate authorised by the Article,
whichever is less.
 4. The rate of commission and the number of shares which persons have agreed to subscribe
absolutely or conditionally are disclosed in the prospectus. However, brokerage can be paid
in addition to the payment of commission.
5. Commission should not be given on those shares which are not issued to the public.
The Balance sheet of a company, prepared according to the prescribed form, should also
disclose, under the head ‘Miscellaneous Expenditure’ all sums payable by way of commission,
brokerage etc.
Pursuant to the guidelines issued by the Stock Exchange Division of the Department of
Economic Affairs, Ministry of Finance vide their letter of 7th May 1985; the following rates for
payment of under-writing commission, brokerage and managing broker’s remuneration are in
force:

Notes:
(i) The rates of under-writing commission given above are the maximum. The company is free to
negotiate such rates with the under-writers, subject to the ceiling.

(ii) Under-writing commission will not be payable on amounts taken up by the promoters group,
employees, directors, their friends and business associates.

Importance of Underwriting:
1) Underwriting acts as a sort of insurance or guarantee against the danger of not receiving
minimum subscription, in the absence of underwriting agreement, there is always uncertainty
regarding subscription of shares of debentures by the public. The guarantee of the
underwriters removes the uncertainty.
2) When shares or debentures are sold through underwriters, there arises more confidence
amongst the public. This is because underwriters undertake shares or debentures of only
those companies which are sound concerns and whose future is bright.
3) Underwriting creates an impression regarding sound status of a company. It increases the
goodwill of the company.

Types of Underwriting:
An agreement to undertake the shares or debentures of a company are of the following types:
(a) Complete Underwriting:
In case, the entire issue of shares or debentures of a company is undertaken, it is said to be full or
complete underwriting. Such an underwriting may be done by one underwriter or by a number of
underwriters. If the full issue is underwritten by one underwriter, then his liability will be equal to the
number of shares or debentures underwritten minus shares applied for.

Even if the issue is fully as subscribed or over-subscribed, the underwriter is eligible to get the agreed
commission on the issue of shares. In case less number of shares or debentures is subscribed by the
public, the underwriter is required to meet the deficiency in whole. In case, the public response is
good, the underwriter is at an advantage to get the underwriting commission, without subscribing
even a single share of debenture.

At the same time, if there are more than one underwriter, then allocation of unsubscribed shares or
debentures amongst themselves is made pro-rata, that is, in the ratio in which the number of shares
or debentures underwritten bear to the total number of shares or debentures offered for subscription.

(b) Partial Underwriting:

If a part of the issue of shares or debenture of a company is underwritten, it is said to be partial
underwriting. Such an underwriting may be done by one underwriter or by a number of underwriters.
In case of partial underwriting, the company is treated as ‘underwriter’ for the remaining part of the
issue. For instance, a company issued 1,000 shares and 40% thereof is underwritten by Nikhil. Out of
800 applications received, the marked applications are 350.

• The liability of Nikhil is calculated as under:

Gross liability of Nikhil = 40% of 1,000 shares = 400
Less: Marked Applications = 350
Net liability of Nikhil = 50
It is to be noted that in case of partial underwriting, the underwriter does not get credit against
the unmarked applications.

(c) Firm Underwriting:

It is an underwriting agreement where the underwriter or underwriters agree to buy a certain number
of shares or debentures irrespective of the number of shares or debentures subscribed by the public.
Thus, in firm underwriting, the underwriters agree that a certain number of shares be allotted to them,
whether or not the issue is over subscribed.

An underwriting agreement may be open or firm. An agreement to take up shares or debentures only
when the issue is not subscribed in full is called open underwriting. For instance, if an underwriter
guarantees the issue of 1,00,000 shares and the public applied for 70,000 shares, then the underwriter
has to purchase the balance of 30,000 shares which are unsubscribed; in case, the public applied for
80,000 shares, then the underwriter has to purchase the balance of 20,000 unsubscribed shares; in
case the public applied for 90,000 shares, then the underwriter has to purchase the balance i.e.,
10,000 shares and in case the public applied for 1,00,000 or more shares, the underwriter has no
liability against the shares. Again, in case of under-subscription, the underwriter is asked to purchase
the deficiency of agreed shares, under open underwriting.

When an underwriter, enters into an agreement with the Company, to purchase certain number of
shares or debentures, irrespective of the public subscription, in addition to the open writing, is known
as firm underwriting. Thus, under firm underwriting, the underwriter agrees to take a specified
number of shares or debentures, in addition to the unsubscribed shares or debentures. An
underwriter through such an agreement with the Company gets priority over the public in relation to
the allotment, in case of over-subscription.

Firm applications are generally treated as direct applications from the public and are included therein.
If, however, the agreement specifically provides, personal relief is given for firm applications also
along-with the marked applications. Firm applications are added to the net liability to find out the
ultimate liability of an underwriter.

Marked or Unmarked Applications:

Generally, shares or debentures issued by a Company are usually underwritten by a number of
underwriters, in an agreed ratio of the whole issue. Each of the underwriters tries to sell the shares or
debentures at the maximum in order to reduce the risk of liability. Therefore, a method of marking
the application form with the stamp of the underwriters is adopted.

This facilitates to distinguish the forms of one underwriter from that of others and becomes clear to
the Company to know the exact number of applications received through a particular underwriter.
Such applications with stamp of an underwriter are called marked applications.

In some cases, public get the application form directly from the Company and such forms do not bear
the stamp of underwriters. Such applications, which do not possess the stamp of underwriters, are
called unmarked or direct applications.