Mumbai, Jan. 5: The Securities and Exchange Board of India (Sebi) has said that merchant bankers cannot refer alternative investment avenues such as corporate deposits and real estate to their clients.

The market regulator turned down a plea made by Barclays Securities last June seeking permission to offer “informal guidance” to their clients by referring them to “alternative service providers for non-security related products or services”.

Barclays Securities had said such alternative service providers could include investment banking companies arranging investment in corporate deposits and inter-corporate deposits, property consultants for purchase and sale of real estate, companies accepting corporate deposits and firms assisting in placement of such deposits.

It said such referral agreements would have no financial liabilities on it and would involve payment of referral fees to it based on the volume of business.

Responding to the plea, Sebi said merchant bankers acted as intermediaries between entities seeking to raise capital through the sale of securities and the purchasers of these securities.

It observed that referring clients to entities providing alternative investment services beyond securities market did not fall under the permitted businesses for merchant bankers.

The market regulator said a stockbroker could engage in referral business.

However, since Barclays Securities is also registered with the regulator as a merchant banker, the Merchant Bankers Regulations will apply.

Regulation 13A, clearly states that a merchant banker cannot carry on any business other than in the securities market.

Sebi said that regulation 13A was further clarified by its circular on June 5, 1998, whereby certain other activities such as advisory services for projects, syndication of rupee term loans, international financial advisory services have been specifically permitted.

Since referral activities for non-security related products and/or services do not fall within the purview of the activities permitted by regulation 13A nor has been specifically mentioned in the circular, the company is not permitted to undertake such business.