Sebi bars JM Financial from managing bond offers

MUMBAI: Markets regulator Sebi on Thursday barred JM Financial from taking on any new mandate to act as a lead manager to public issue of debt securities over its NBFC arm JM Financial Products’s irregularities. JM Financial can, however, continue to manage issues that it has signed to execute, for the next 60 days, a Sebi order said.

On Thursday, Sebi in its order said that its routine investigations of some of the recent public issues of non-convertible debentures showed that in one offer, in which JM Financial was one of the lead managers, JM Financial Products had guaranteed returns to investors.Such guarantees are a violation of Sebi rules and hence the ban on JM Financial, the order said. Late in the evening, JM Financial told the bourses about Sebi’s order and said that it will “fully cooperate with Sebi in this investigation”.
The Sebi order against JM Financial came just two days after banking regulator RBI banned JM Financial Products from giving loans against shares, including financing of IPOs, after it observed several procedural irregularities by the entity. Soon after the RBI order was out, JM Financial had denied that there was any violation of rules by its lending arm.
Sebi is set to investigate this matter and will complete the same in the next six months. Thursday’s order is an ex parte one, meaning a one-sided diktat without listening to JM Financial’s side of the matter. Hence, Sebi has given the company 21 days to clarify to Sebi about their side of the matter.
According to Sebi, in one of the public offerings that was open in October 2023, “it was observed that JM Financial Products (JMFPL) acted as counterparty to the trades of individual investors and had also provided the funds deployed by these investors for subscribing to the issue. JMFPL, 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.”
Sebi investigation also revealed that these investors had submitted their applications in the public issue for NCDs through the stock broker JM Financial Services, another group subsidiary of the JM Finance.
Since investigations showed that “JMFPL had provided an ‘exit’ to all the applicants who had availed funding from it”, the regulator further investigated the investors who had availed loans from the NBFC. Sebi found that there were 10 instances where investors with declared yearly income of less than Rs 5 lakh, were given loans of Rs 98 lakh each. Sebi also found that 47 other investors with declared yearly income of less than Rs 5 lakh, were given loans of Rs 9.8 lakh each.
There were several other discrepancies in the loan process, application forms, margining system, etc, in debt offers that JM Financial had managed, Sebi said.