Sebi's order came after the regulator undertook a routine examination of the public issues of Non-Convertible Debentures during the year 2023. (Reuters/File)
Market regulator Securities and Exchange Board of India (Sebi) Thursday barred JM Financial, a registered merchant banker, from acting as a lead manager for any new public issue of debt securities.
Sebi’s action against JM Financial (JMFL) comes days after the Reserve Bank of India (RBI) banned JM Financial Products Ltd (JMFPL) from financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures. JMFPL is a non-banking finance company (NBFC) and a subsidiary of JMFL.
“The Noticee (JMFL-MB) is barred from taking any new mandate for acting as a lead manager for any public issue of debt securities,” Ashwani Bhatia, Whole Time Member, Sebi said in an interim ex parte order.
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For any existing mandates, JMFL-MB can continue to act as a lead manager for public issue of debt securities for a period of 60 days from the date of order, he said.
The market regulator undertook a routine examination of the public issues of non-convertible debentures (NCD) during the year 2023.
It was observed during the examination that in a particular issue, a significant number of individual investors sold the securities allotted to them on the day of listing itself. The issue, which was the first tranche of NCDs issued under a shelf prospectus dated October 16, 2023, had a base issue size of Rs 200 crore with a green shoe option of Rs 800 crore. JMFL was one of the lead managers to the issue.
The holding pattern of the securities showed 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, which was unusual, the regulator said.
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On examination of the transactions on the day of listing of the said issue, Sebi observed that JMFPL 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.
“JMFPL-NBFC, subsequently, on the very same day, offloaded at a loss, a significant portion of the securities that it had acquired from these investors to corporate investors,” the order said.
The examination also revealed that these investors had submitted their applications in the public issue through the stock broker JM Financial Services Ltd (JMFSL), another subsidiary of JMFL.
Sebi said JMFL, 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.
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It said the manner in which subscriptions have been managed in the said public issue of debt instruments was shocking.
“We can also conclude from the data with us that JMFPL-NBFC was the seller, buyer and then a re-seller of the NCDs of which JM Financial Ltd was the merchant banker. They were able to seamlessly pull this off because they were the Power of Attorney (PoA) holders for many of the investors in question,” Sebi said.
