SEBI restricts JM Financial's role as lead manager to public issue of debt securities

The regulator had investigated issue of NCDs in 2023

JM Financial Limited informed stock exchanges on June 20 that it has been directed by the Securities and Exchange Board of India (SEBI) to refrain from accepting new mandates as a lead manager in public issues of debt securities until March 31, 2025 or until further notice from SEBI.

The SEBI order specifies that the restrictions imposed are solely applicable to JM Financial's role as a lead manager for public issues of debt securities. It explicitly excludes the company's involvement as a lead manager to public issue of equity instruments and other activities.

This order follows an earlier ex-parte interim order dated March 7, 2024, issued by SEBI concerning JM Financial Limited. In an interim order, dated March 7, the Securities and Exchange Board of India (Sebi) stated 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. Sebi has stated that the observations made in the order are based on the material available on record and that the investigation into this matter will be completed in six months.

How it started

These proceedings started with the regulator's routine examination into public issues of non-convertible debentures (NCDs) in 2023. The examination looked into the role of three different businesses--one of the parent company and merchant banker JM Financial Limited, wholly owned subsidiary and broker JM Financial Services (JMFSL) and subsidiary and a non-banking financial corporation (NBFC) JM Financial Products Limited (JMFPL)--in a debt issue.

The issue, which was the first tranche of NCDs issued under a shelf prospectus (document that gives details of the debt-issuing company) dated October 16, 2023, had a base issue size of Rs. 200 Crore with a green shoe option of Rs. 800 Crore.

JM Financial was the lead manager to the issue. The examination showed that its NBFC arm JMFPL not only funded the investors who subscribed to this issue but also gave them an exit, at a loss to itself. Its brokerage JMFSL facilitated the investors' trades.

The Sebi order stated, "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 Limited was the Merchant Banker. They were able to seamlessly pull this off because they were the PoA (Power of Attorney) holders for many of the investors in question."

The regulator noted the "shocking" manner in which subscriptions were managed in a public issue of debt instrument. The Sebi order stated 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".

According to the regulator, it resulted in market integrity and fair-price discovery being compromised.