Investment banking and Merchant Banking
At this stage, it would be relevant therefore, to draw a fine of distinction between the terms ‘Investment Banking’ and ‘Merchant Banking’ as both these terms are extensively used in the corporate world.
‘Merchant Banking’ as the term suggests, is the function of intermediation in the capital markets. It consists of assisting issuers to raise capital by placement of securities issued by them with investors.
However, Merchant Banking is not merely about the marketing of securities in an agency capacity. The Merchant Banker has an onerous responsibility towards the investors who invest in such securities.
The regulatory authorities require the Merchant Banking firms to promote the quality issues, maintain integrity and ensure compliance with the law on own account and on behalf of issuers as well.
Therefore, Merchant Banking is a fee based services for management of public offers, popularly known as ‘Issue Management’ and for private placement of securities in the capital market. In India, the Merchant Banker leading a public offer is called as ‘Lead Manager’.
On the other hand, the term ‘Investment Banking’ has a much wider connotation and is gradually becoming more of an inclusive term to refer to all types of capital market activity, both fund-based and non-fund based.
This development has been driven more by the way the American investment banks have evolved themselves over the past century. Investment banking encompasses not merely Merchant banking but other related capital activities such as- Stock trading, market making, underwriting, broking and asset management as well.
Besides the above, Investment banks also provide a host of specialized corporate advisory services in the areas of project advisory, business and financial advisory and mergers and acquisitions.
Therefore, the term ‘Investment banking’ has much wider concept than the term ‘Merchant Banking’.
At this stage, it would be relevant therefore, to draw a fine of distinction between the terms ‘Investment Banking’ and ‘Merchant Banking’ as both these terms are extensively used in the corporate world.
‘Merchant Banking’ as the term suggests, is the function of intermediation in the capital markets. It consists of assisting issuers to raise capital by placement of securities issued by them with investors.
However, Merchant Banking is not merely about the marketing of securities in an agency capacity. The Merchant Banker has an onerous responsibility towards the investors who invest in such securities.
The regulatory authorities require the Merchant Banking firms to promote the quality issues, maintain integrity and ensure compliance with the law on own account and on behalf of issuers as well.
Therefore, Merchant Banking is a fee based services for management of public offers, popularly known as ‘Issue Management’ and for private placement of securities in the capital market. In India, the Merchant Banker leading a public offer is called as ‘Lead Manager’.
On the other hand, the term ‘Investment Banking’ has a much wider connotation and is gradually becoming more of an inclusive term to refer to all types of capital market activity, both fund-based and non-fund based.
This development has been driven more by the way the American investment banks have evolved themselves over the past century. Investment banking encompasses not merely Merchant banking but other related capital activities such as- Stock trading, market making, underwriting, broking and asset management as well.
Besides the above, Investment banks also provide a host of specialized corporate advisory services in the areas of project advisory, business and financial advisory and mergers and acquisitions.
Therefore, the term ‘Investment banking’ has much wider concept than the term ‘Merchant Banking’.