Sebi bars JM Financial from acting as lead manager for public debt issues

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Market regulator Securities and Exchange Board of India (Sebi) on Thursday imposed curbs on JM Financial from acting as a lead manager for any public issue of debt securities due to a violation of regulations. This is an interim order against the firm as of now.

Sebi, in its order on Thursday, said: “Sebi shall undertake an investigation into the issues covered under this order. The investigation so undertaken shall be completed within a period of six months from the date of this order.” 

However, Sebi said that JM Financial may continue to act as a lead manager for public issue of debt securities for a period of 60 days from the date of this Order. 

In 2023, Sebi initiated a routine examination of the public issues of non-convertible debentures (NCD) and found that a very large percentage of securities issued changed hands on the day of listing as a result of which, retail ownership came down sharply. A.K. Capital Services, JM Financial, Nuvama Wealth Management, and Trust Investment Advisors were the lead managers for the NCD issue.

Following the examination, Sebi issued the interim order. The regulator noted the “shocking” manner in which subscriptions were managed in a public issue of debt instrument. 

The Sebi said that the transactions at every stage of the public issue appeared to have been done in a “pre determined and pre-meditated manner; and executed clinically to ensure subscription and success”.

SEBI, on further examination of transactions, observed that JM Financial Products, the non-banking finance subsidiary of JM Financial, acted as a counterparty to the trades of these individual investors and had also provided the funds deployed by these investors for subscribing to the issue.

On the very same day, JM Financial Products offloaded at a loss, a significant portion of the securities that it had acquired from these investors to corporate investors.

Prima facie, SEBI said, it was noted that the scheme involved getting individual investors, who would otherwise not have participated in the issue, to make applications not just by providing funds to them, but also by assuring them an exit at a profit on the listing day.

JM Financial was noted to have given an assured exit to certain investors at a profit, thereby incentivising them to apply in the public issue in contravention of the regulatory mandates. Market integrity and fair price discovery have been compromised in the process.

Earlier this week, the Reserve Bank of India barred JM Financial Products from financing against shares and debentures with immediate effect. On Tuesday, the RBI said the action was taken after observing certain serious deficiencies in the financial services firm’s loan process. More importantly, the central bank highlighted that there are serious concerns on the governance issues in the company, apart from violation of regulatory guidelines.

“This action is necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD subscriptions,” RBI said.

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