SEBI imposes restrictions on JM Financial from managing new bond issuances

In yet another setback for JM Financial, capital market regulator Securities and Exchange Board of India (SEBI) on Thursday barred the investment banking firm from taking new mandates to act as a lead manager for any public issue of debt securities due to violation of regulations.

The market watchdog has passed an interim order against JM Financial in this matter.

In its interim order, SEBI said that JM Financial is allowed to continue serving as the lead manager for public issues of debt securities for the next 60 days from the date of this order.

This development follows closely on the heels of the Reserve Bank of India (RBI) imposing restrictions on the company. The RBI asked JM Financial to cease and desist immediately from any form of financing against shares and debentures, including the sanction and disbursal of loans against IPOs and subscription to debentures.

SEBI will conclude its investigation into the alleged violation of regulations by the company within the next 6 months. Additionally, JM Financial has been asked by the regulator to submit its response and objections to the interim order within 21 days.

The SEBI order also mentioned that the observations made in it are derived from the material available on record. The investigation into this matter is expected to be concluded within 6 months.

Last year, the regulator started a routine examination into public issues of non-convertible debentures (NCDs). The examination scrutinized the roles of 3 entities: the parent company and merchant banker JM Financial Limited, the wholly-owned subsidiary and broker JM Financial Services, and the subsidiary and non-banking financial corporation (NBFC) JM Financial Products Limited, in a debt issue.

The issue, representing the initial tranche of Non-Convertible Debentures (NCDs) issued under a shelf prospectus (a document providing details of the debt-issuing company) dated October 16, 2023, had a base issue size of ₹200 crore with a green shoe option of ₹800 crore.

During the examination, the regulator found the "shocking" manner in which subscriptions were managed in a public issue of debt instruments.

The regulator's interim order specified that transactions at each stage of the public issue seemed to have been conducted in a "pre-determined and pre-meditated manner".