Authored by Nithin Satheesh

ISK Advisors Private Limited (“Querist”), a SEBI-registered Category-I Merchant Banker, carries out management of public issues of securities, underwriting, corporate advisory and other activities as permitted by the SEBI (Merchant Banker) Regulations, 1992 (“Merchant Banker Regulations”). Further, ISK Equities Private Limited (“IEPL”), a wholly-owned subsidiary of the Querist, is a SEBI-registered Stock Broker since January 6, 2025.

The Querist had managed the Small and Medium Enterprises Initial Public Offerings (SME IPOs) of nine companies during the period from September 2020 to December 2024. The Querist proposed to acquire equity shares of certain companies whose public issues it had managed. Subsequent to the listing of such companies on the Stock Exchanges, the Querist neither rendered any professional services to, nor maintained any association or connection with, the said companies. Similarly, IEPL also proposed to acquire equity shares of Rajesh Power Services Limited (listed on December 2, 2024), whose public issue was managed by the Querist.

Pursuant to the above, the Querist sought clarification from SEBI under the Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 on the following queries:

1. Whether the Querist, being a Merchant Banker, is permitted to acquire shares of a body corporate whose public issue was managed by it, provided that it is neither a connected person nor in possession of any Unpublished Price Sensitive Information (“UPSI”) at the time of such acquisition, in terms of Regulation 26 of the Merchant Banker Regulations.

2. Whether IEPL is permitted to acquire shares of body corporates whose public issues were managed by the Querist, but in respect of which IEPL did not act, and is not acting, as a market maker?

3. Whether IEPL is permitted to acquire shares of Rajesh Power Services Limited in circumstances where it has not been appointed as a market maker?

In relation to the above queries, SEBI issued an informal guidance dated May 23, 2025, wherein it clarified as follows:

1. SEBI clarified that under Regulation 2(1)(d)(i) of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Insider Trading Regulations”), the Querist shall be considered a “connected person” in respect of bodies corporate whose public issues were managed by it during the last six months preceding the intended purchase, thereby qualifying as an “insider” in terms of Regulation 2(1)(g) of Insider Trading Regulations. Since the Querist was associated with Rajesh Power Services Ltd. in the capacity of a merchant banker during the six months prior to the proposed acquisition, it continues to be a “connected person”. Accordingly, the Querist is prohibited from acquiring securities of Rajesh Power Services Ltd. under Regulation 26 of Merchant Banker Regulations read with Regulation 2(1)(d) of Insider Trading Regulations. However, with respect to the other companies, as more than six months have elapsed from the date of their listing, the Querist may acquire the shares provided that it is not a connected person and does not possess any UPSI at the time of acquisition.

2. SEBI has emphasized that trading restrictions also extend to subsidiary companies. Under Regulation 2(1)(d)(ii)(b) of Insider Trading Regulations, a subsidiary company of a connected person is deemed to be a connected person, unless the contrary is established. Accordingly, being a wholly-owned subsidiary of the Querist, IEPL is also deemed to be a connected person of the bodies corporate whose public issues were managed by the Querist. Consequently, IEPL is subject to the same trading restrictions as those applicable to the Querist.

3. SEBI reiterated that Regulation 26 of Merchant Banker Regulations prohibits a merchant banker from executing transactions, either on its account or through its associates, in securities of body corporates on the basis of UPSI obtained during the course of any professional assignment.

4. SEBI clarified that in case the Querist undertakes acquisition of securities of any body corporate whose public issue is managed by it, the Querist would be required to submit complete particulars of such acquisition to SEBI within fifteen (15) days, in accordance with Regulation 27 of Merchant Banker Regulations.