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

This comes after the Reserve Bank of India (RBI) barred Products Ltd from doing any form of financing against shares and debentures due to certain serious deficiencies with respect to loans sanctioned by the company for IPO financing as well as NCD subscriptions.

“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,” the capital market regulator said in its order.

Sebi undertook a routine examination of the public issues of non-convertible debentures (NCD) during the year 2023 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.

On further examination of the transactions, it was 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, 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, along with its connected group entities were prima facie 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.

In the process, market integrity and fair price discovery have been compromised.

Such practices as explained earlier have detrimental effects on the orderly functioning of the market and harm the interest of the ordinary investors.

“Given the same, there is an urgent need for the regulator to step in and pass interim directions, pending investigation, to prevent any further erosion in market integrity by virtue of such practices,” SEBI said.

In case of the existing mandates where JM Financial is a lead manager, it has been allowed to remain so for a period of 60 days from the date of this order.