SEBI Bars JM Financial From Acting As Lead Manager For Any Debt Issue

SEBI has barred JM Financial from taking new mandates as a lead manager for public issues of debt securities in a second such instance of stern action by a financial sector regulator within a week.

For existing mandates, JM Financial is allowed to continue its role for 60 days from the date of the order, according to an interim order passed on Thursday.

The market regulator investigated a non-convertible debenture, which opened on Oct. 19 and closed on Oct. 30. As per the regulator, the base issue size was Rs 200 crore and the greenshoe option was Rs 800 crore.

"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 regulator said in its ex-parte interim order.

SEBI's findings revealed a meticulously planned scheme aimed at manipulating the subscription and success of the public issue, according to the order. The regulator's probe shed light on the involvement of JM Financial as the lead manager and its associated entity, JM Financial NBFC. 

While SEBI did not name the issuer in its order, the only issue that matched the details given in the market regulator's order was the NCD of Piramal Enterprises, according to data available on the stock exchanges. The issue raised Rs 533 crore and was listed on Nov. 7.

Piramal Enterprises declined to comment on queries mailed by NDTV Profit.

In an exchange filing on Thursday, JM Financial stated that the financial impact of the SEBI order cannot be ascertained at this point in time. The company also added that it will fully cooperate with SEBI in the investigation.

SEBI's crackdown follows the Reserve Bank of India's order barring JM Financial Products Ltd. from offering finance against shares and debentures with immediate effect. The two regulators are taking coordinated action against the leveraged buying of shares in Indian markets.

The action by the Securities and Exchange Board of India on Thursday came after the regulator concluded an investigation into the public issue of non-convertible debentures during the year 2023.

JM Financial was crucial as the lead manager for the NCD public issue and JM Financial NBFC acted as an 'exit provider', according to SEBI. This means they gave funds to investors for buying NCDs during the public issue and later bought all the allotted NCDs from the investors they funded, it said.

What stands out in this investigation is the offloading of a significant portion of the acquired securities by JM Financial NBFC on the very same day, resulting in a financial loss. 

SEBI expressed shock at the manner in which subscriptions were managed, revealing a scheme that seemed to encourage individual investors to make applications for NCDs.

Investors got money from JM Financial NBFC and were promised a profit when they sold their investments on the listing day, according to the order. The whole process, from providing funds to buying and selling securities, seemed planned in advance, it said.

On the listing day, a significant number of individual investors sold the allotted securities, leading to an unexpected change in the holding pattern and a sharp decline in retail ownership, SEBI said.

This abnormal behaviour on the listing day prompted SEBI to scrutinise the public issue as it appeared to deviate significantly from the usual market norms.