The Indian Express (Delhi Edition)
Sebi bars JM Fin from acting as lead manager for new bond issues
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) told JM Financial Products Ltd (JMFPL) to stop financing against shares and debentures. JMFPL is a non-banking finance company (NBFC) and a subsidiary of JMFL.
Sebi Thursday said JMFL, along with its connected group entities, appeared to have given an assured exit to certain investors at a profit, thus incentivising them to apply to the public issue in contravention of regulatory mandates.
“The Noticee (JMFL-MB) is barredfromtakinganynewmandate for acting as a lead manager foranypublicissueofdebtsecurities,” said Sebi whole-time memberashwanibhatiaintheinterim ex parte order. But it can continue toactasleadmanagerforexisting mandates for 60 days from the date of this order, Sebi said.
The matter came to light when the market regulator undertook a routine examination of the public issues of non-convertible debentures (NCD) during the year 2023.
In a particular issue, Sebi said, 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 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.
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 fundsdeployedbytheseinvestors 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.
It said the manner in which the subscriptions have been managed was shocking.
“We can also conclude from the data with us that JMFPLNBFC was the seller, buyer and then a reseller 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 holders for many of the investors in question,” Sebi said.