SEBI issues interim order against JM Financial, warns of further action

Probe reveals troubling details regarding JM Financial’s involvement as lead manager, along with its associated entity, JM Financial NBFC

FIle photo of the Sebi logo outside its headquarters in Mumbai (Photo: IANS)
FIle photo of the Sebi logo outside its headquarters in Mumbai (Photo: IANS)
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NH Business Bureau

In a stern move by SEBI (Securities and Exchange Board of India), JM Financial has been barred from taking new mandates as a lead manager for public issues of debt securities. This action, coming in the wake of an investigation into a public issue of non-convertible debentures during 2023, is being seen as an indictment of JM Financial’s disregard for integrity and fair-price discovery.

JM Financial is a leading financial services group with the distinction of being one of the oldest merchant bankers in India, specialising in capital raising, mergers and acquisitions, private equity, and restructuring advisory across domestic and international markets.

According to SEBI's interim order issued on Thursday, JM Financial is permitted to continue its role for existing mandates for a period of 60 days from the date of the order. The investigation revealed troubling findings regarding JM Financial’s involvement as the lead manager, along with its associated entity, JM Financial NBFC.

Following an investigation into a public issue of non-convertible debentures in 2023, SEBI took action against JM Financial and its associated entity, JM Financial NBFC. Earlier on 27 February, the RBI (Reserve Bank of India) had uncovered various manipulations, including the repeated facilitation of a group of the company's customers to bid for IPOs using loaned funds.

The RBI's findings revealed a lack of diligence in credit underwriting and financing against minimal margins and the same was also cited by SEBI, while indicating that more action was to follow.

SEBI’s probe highlighted various manipulative practices, including the provision of loaned funds to a group of customers to bid for various IPOs and NCD offerings. The market’s regulator in its interim order expressed shock at the manner in which subscriptions were managed, noting a pre-determined and pre-meditated approach to ensure subscription and success, compromising market integrity.

Despite JM Financial's assertions of compliance with regulatory mandates, SEBI's order suggests a complete disregard for restrictions imposed on providing incentives to investors for subscribing to debt securities. The order also points to the contravention of regulatory mandates, with promises of assured returns to certain investors to incentivise their participation in the public issue.

SEBI's examination underscores the importance of maintaining transparency and fairness in the market, particularly in the debt segment. The regulator's actions send a clear message to market participants about the consequences of non-compliance with regulatory requirements and manipulative practices. As the investigation unfolds, further actions may be anticipated, reflecting SEBI's commitment to upholding market integrity and investor protection.

The markets regulator commenced proceedings with a routine scrutiny into public issues of non-convertible debentures (NCDs) in 2023. The investigation focused on the involvement of three entities: the parent company and merchant banker, JM Financial Limited; its wholly owned subsidiary and broker, JM Financial Services (JMFSL); and its subsidiary and non-banking financial corporation (NBFC), JM Financial Products Limited (JMFPL), in a specific debt issue.

This issue, the first tranche of NCDs issued under a shelf prospectus dated 16 October 2023 had a base issue size of Rs 200 crore with a green shoe option of Rs 800 crore. JM Financial served as the lead manager for this issue.


The examination unearthed that JM Financial's NBFC arm, JMFPL, not only funded investors subscribing to the issue, but also facilitated their exit, resulting in losses to itself. Additionally, JM Financial's brokerage, JMFSL, played a role in facilitating investors' trades. The SEBI order observed that JMFPL-NBFC was intricately involved in selling, buying, and re-selling the NCDs, leveraging its position as the Power of Attorney (PoA) holder for many investors.

In its interim report, SEBI expressed shock at how subscriptions were managed, highlighting a pre-determined and pre-meditated approach aimed at ensuring subscription and success. This, according to SEBI, compromised market integrity and fair-price discovery. Despite JM Financial and its group companies asserting compliance with legal requirements, SEBI's order pointed out their actions' collective disregard for SEBI's restrictions on providing incentives to investors for subscribing to debt securities.

The order noted potential contraventions of regulatory mandates, particularly in promising assured returns to certain investors, thereby incentivising their participation in the public issue. Such actions, according to SEBI, appear to have been designed to skirt legal boundaries. The regulator's examination suggests a scheme aimed at incentivising investors to subscribe to the issue, potentially violating the law.

This contravention is particularly concerning given the nature of the debt market, where investors typically seek fixed returns and hold instruments until maturity. SEBI's scrutiny underscores the importance of maintaining market integrity and transparency, particularly in public issues of securities.

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