Sebi bars JM Financial from acting as lead manager for public issue of debt securities

Close on the heels of the Reserve Bank of India (RBI) barring JM Financial Products from IPO financing and even financing against shares, the capital markets regulator the Securities and Exchange Board of India (Sebi) has barred JM Financial from acting as a lead manager for any public issue of debt securities.

According to the Sebi order, JM Financial allegedly engaged in practices that have a “detrimental effect on the orderly functioning of the market and harm the interest of the ordinary investors.”

A 22-page order by Sebi's whole-time member Ashwani Bhatia stated that JM Financial, along with connected entities, gave an assured exit to certain investors at a profit, thereby incentivising them to apply in the public issue in contravention of the regulatory mandates.

“The manner in which subscriptions have been managed in this public issue of debt instrument is shocking. The transactions at every stage of this public issue appear to have been done in a pre-determined and pre-meditated manner; and executed clinically to ensure subscription and success... In the process, market integrity and fair price discovery have been compromised,” stated the Sebi order.

The probe revealed that in a particular debt issue, a significant number of individual investors sold the securities allotted to them on the day of listing itself.

Further investigation of the transactions revealed that JM Financial Products, a non-banking finance company (NBFC) and a subsidiary of JM Financial, acted as counterparty to the trades of these individual investors and had also provided the funds deployed by these investors for subscribing to the issue.

The Sebi probe also revealed that in some cases the loans extended to the applicants were disproportionate to the declared income along with issues like date mismatch and lack of receipt of upfront margin from certain applicants.

“While we have examined modus-operandi in one case, the bank statements of the investors, operated through PoA by the JM Group entities, suggest that this practice is followed in most public issues. The pattern of transactions seen in the bank statements suggest that this is not an isolated incident,” stated the Sebi order.