The regulator feels that this would give a greater comfort level to the investors and the regulator as a registered market intermediary would get involved with the process.

The suggestion to this effect was made to Sebi chairman D R Mehta by a clutch of merchant bankers who met him on Thursday. Sebi chairman is meeting various market intermediaries to ascertain their views on buy-back of shares. The exercise is being done ahead of the regulator coming out with guidelines on share buy-back. As it does not plan to set up a committee to frame these guidelines owing to shortage of time, the regulator does not plan to take any chances and is hence meeting top intermediaries before finalising the guidelines.

Sebi sources said that one of the suggestions that was put up to the regulator by the merchant bankers was that of insisting that the entire procedure ishandled by a registered merchant banker.

"The suggestion has merit in it and we too would feel comfortable if a registered intermediary takes responsibility for the process of buy-back. However, a final decision on this would be taken once the guidelines are finalised", said a Sebi source.

Sources pointed out that the ordinance has pointed out that the buy-back would have to be done on a proportionate basis, which means that it would have to be offered to all shareholders of a company, in just the same manner as a rights issue process is carried out.

Sebi is also debating whether it should be mandatory on a company to issue a prospectus making adequate disclosures when it decides to make an offer for buy-back.

"The process may go through like an open offer under the takeover code goes through. If this procedure is laid down by Sebi then it would automatically imply that a merchant banker would have to be appointed", said a source.

Merchant banking industry sources pointed out that it would make alot of sense for the companies as well the regulator to ensure that an intermediary is involved in the process. The process, according to them would not be as simple as it appears on the face of it and would be frought with the risk of possible insider trading. "By routing the process through registered intermediaries the whole procedure could be culminated in a more transparent manner", said a merchant banker.

Insight

New ideas, newer avenues: In the absence of business, merchant bankers seem to be trying out new avenues for garnering fees. What, after all, is the need for issue of prospectus? If required to be issued, prospectus will have to state the date of opening of the offer, and this will mean that the offer, unless ridiculously priced, will be outpriced. The time-lag of one year to complete buyback is given so that after taking the approval buy-back can be announced at the most appropriate time without announcing the date in advance. If the board is required to certify that it willnot go bankrupt in one year, it may as well be asked to certify that an escrow account has been opened and payment will be despatched within stipulated time frame, without the necessity of an inermediary. Besides what additional information will the prospectus contain other than those certified by board? And in case buy-back is through open market route, what will be the job of the merchant bankers? Are close-ended mutual funds required to appoint merchant bankers to buy back the units from open market?