JM Financial Barred from Leading Debt Security Issues Till March 2025

The Securities and Exchange Board of India (Sebi) has upheld its interim order barring JM Financial (JMFL) from acting as a lead manager for public offerings of debt securities (bonds) until March 31, 2025. This action stems from alleged irregularities in a recent non-convertible debenture (NCD) issuance.

Focus on Debt Securities

SEBI clarified that the restriction applies solely to JMFL’s role in managing public offerings of debt securities, such as bonds and debentures. It does not impact the company’s ability to manage equity offerings (stock issuance) or other activities.

Allegations and Interim Order

In March 2024, SEBI issued an interim order barring JMFL from taking on new debt security leadership roles due to potential irregularities identified during a public NCD issuance. The regulator’s investigation revealed concerning practices involving retail investors and JM Group companies.

SEBI’s Findings

SEBI’s preliminary investigation suggested that JM Group entities may have incentivised retail investors to subscribe to NCD offerings managed by JMFL. Additionally, a significant portion of the NCD allocations went to retail investors who promptly sold their securities on the listing day. Notably, the primary buyer of these NCDs was JM Financial Products Limited (JMFPL), a JM Group NBFC (non-banking financial company). JMFPL reportedly sold these securities at a loss.

Further investigation revealed that many retail investor applications were financed by JMFPL through JM Financial Services Ltd, with JMFPL holding power of attorney over these accounts.

Voluntary Undertakings and Continued Restriction

Following Sebi’s initial order, JMFL opted not to contest the allegations and instead offered voluntary undertakings. These undertakings included refraining from taking on new leadership roles in debt security offerings until March 31, 2025, or a later date determined by SEBI.

Additionally, JMFL’s board voluntarily decided to:

• Completely cease IPO financing activities.
• Enhance internal systems and processes to prevent future misconduct.
• Implement staff training programs on regulatory compliance.
• Conduct workshops to educate staff on regulatory requirements.
• Submit a compliance certificate by December 31, 2024.
• Considering these undertakings and the ongoing investigation, Sebi deemed it necessary to uphold the restrictions outlined in the interim order.

The Road Ahead

JMFL remains barred from acting as a lead manager for debt security offerings until March 31, 2025, or a later date dictated by SEBI. This action underscores SEBI’s commitment to protecting investors and maintaining market integrity.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.