Sebi confirms bar against JM Financial from taking new mandates amidst lapses in debt issue

The Securities and Exchange Board of India (Sebi) on Thursday confirmed its interim order barring JM Financial from acting as a lead manager for any new public issue of debt securities after the company gave a voluntary undertaking that it will not take up new mandates as a lead manager till 31 May 2025.

Sebi's order confirmed its interim order passed on 7 March after the market regulator recorded serious regulatory lapses during an instance where the company acted as a lead manager for a public issue. 

After the interim order, Sebi gave JM an opportunity to be personally heard. During the hearings, JM requested Sebi to not confirm the order in view of the written assurance of the company. 

The voluntary undertaking stated that JM will not take on any new mandate as lead manager in any public issue for a period up to 31 March 2025 or a date as Sebi may specify.

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It also assured that it will not request for discontinuation of the investigation and instead pray for its expeditious conclusion. 

“JM Financial is keen to resolve the matter through the settlement mechanism under the Sebi (Settlement Proceedings) Regulations, 2018,” the company said. 

The company also assured that its existing systems and processes relating to mandates for acting as lead manager for IPOs of debt securities are further augmented, so that any kind of wrongdoing, as alluded to in the interim order, is prevented. 

JM also assured in the undertaking it has decided to voluntarily discontinue IPO financing business completely.

“The voluntary undertaking substantially covers the restrictions imposed by the interim order,” Sebi's whole-time member Ashwani Bhatia recorded in the order. 

Reacting to the confirmation order, JM Financial stated that the directions contained in the order are limited to the company's role as a lead manager to the public issue of debt securities and do not relate to other activities of the company, including acting as a lead manager to public issue of equity instruments.

“The company is committed to co-operating with Sebi for an expeditious resolution of the matter,” the company said.

The background

The regulator's interim order had followed Reserve Bank of India’s directions barring one of its other group entities, JM Financial Products, from conducting initial public offering (IPO) financial business till RBI conducts special audits. 

The banking regulator had said the action had been taken after observing certain serious deficiencies in the financial services firm's loan process. The central bank also highlighted serious concerns about the company's governance practices, in addition to violating regulatory guidelines.

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According to the earlier interim order, in 2023, the market regulator undertook a routine examination of non-convertible debentures (NCD) public issues.

During the inspection, Sebi found that a considerable proportion of individual investors in a certain issue sold the securities assigned to them on the day of the listing. The securities' holding pattern revealed that, on the day of the listing, a sizeable portion of the securities issued changed hands, leading to a substantial decline in retail ownership. 

In that particular issue, A.K. Capital Services Ltd., JM Financial Limited, JMFL-MB (Noticee), Nuvama Wealth Management Limited, and Trust Investment Advisors Private Limited were the lead managers.

Upon closer inspection of the transactions on the day the said issue was listed, it was discovered that JM Financial Products Ltd (JMFPL-NBFC), a non-banking finance company and a subsidiary JM Financial Ltd Merchant Banker (JMFL-MB) had both supplied the funds used by these investors to subscribe to the issue and served as a counterparty to their trades. 

Afterwards, JMFPL-NBFC sold a sizeable amount of the securities it had bought from these individuals to corporate investors that same day, offloading them at a loss.

The regulator's investigation also revealed that these investors had submitted their applications in the public issue through the stock broker JM Financial Services Ltd (JMFSL-Broker), another subsidiary of the noticee—JMFL-MB. 

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JM Financial Ltd, the lead manager; JM Financial Services Ltd, the stockbroker; and JM Financial Products Ltd, the NBFC, are part of the JM Financial Group.