New Delhi, Mar 7 (PTI) Capital markets watchdog Sebi on Thursday barred JM Financial Ltd from accepting new mandates to act as a lead manager for public issue of debt securities, for flouting regulatory norms.
However, in case of existing mandates, JM Financial can continue to act as a lead manager for public issue of debt securities for a period of 60 days, Sebi said in its interim order.
This came days after the Reserve Bank barred JM Financial Products Ltd from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO).
The Sebi’s directive came after the markets regulator undertook a routine examination of the public issues of Non-Convertible Debentures (NCD) during the year 2023. The investigation focused on the activities of JM Financial and its related entities in a particular debt issue.
In its interim order, Sebi said the manner in which subscriptions have been managed in this public issue of debt instruments is shocking. The transactions at every stage of this public issue appear to have been done in a pre-determined and pre-meditated manner; and executed clinically to ensure subscription and success.
“The regulator noted that noticee (JM Financial) along with its connected group entities were prima facie noted to have given an assured exit to certain investors at a profit, thereby incentivising them to apply in the public issue in contravention of the regulatory mandates,” it said.
Further, the regulator will undertake “an investigation into the issues covered under this order. The investigation so undertaken shall be completed within a period of six months”.
The scheme, it is prima facie noted, involved getting individual investors, who would otherwise not have participated in the issue, to make applications not just by providing funds to them but also by assuring them an exit at a profit on the listing day. An investor seeking funding to apply in a public issue of securities is looking to make trading gains by virtue of the movement in the price of the security post-listing, Sebi noted.
It further said that JM Financial along with others was the merchant banker of the issue.
On further examination of the transactions on the day of listing of the issue, Sebi noted that JM Financial Products Ltd (JMFPL-NBFC), a non banking finance company, and a subsidiary of JM Financial, acted as a counter party to the trades of these individual investors and had also provided the funds deployed by these investors 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 examination 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 JM Financial Ltd.
By indulging in such practices, JM Financial violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules as well as merchant bankers rules.
While the regulator has examined modus-operandi in one case, the bank statements of the investors, operated through Power of Attorney (PoA) by the JM Group entities, suggest that this practice is followed in most public issues.
The pattern of transactions seen in the bank statements suggest that this is not an isolated incident, Sebi said. PTI SP SP ANU ANU
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