SEBI Catches JM Financials Doing Unfair Trading, Bans From Managing Public Offering

Market watchdog SEBI has prohibited JM Financials from managing any upcoming public offerings in the debt market. On Thursday, SEBI issued an emergency directive. According to the regulator, it looked into the public issue of NCDs in 2023 and observed the “shocking” way that subscriptions to a particular issue were handled. The Reserve Bank of India had issued an order the day before prohibiting JM Financial Products from closing any new loans secured by shares. This was followed by SEBI interim decision. According to SEBI, JM Financials broke the regulator’s rules against unfair and fraudulent trading activities.

Three distinct companies have being investigated, according to SEBI: JM Financial Limited, a merchant banker and parent firm; JM Financial Services, a wholly owned subsidiary and broker.

The issue, which was the first tranche of NCDs issued under a shelf prospectus (a document that provides data about the debt-issuing company) dated October 16, 2023, had a base issue size of Rs. 200 Crore with a green shoe option of Rs. 800 Crore, according to investigations. The issue’s main manager was JM Financial. According to a SEBI investigation, JMFPL, its NBFC subsidiary, granted investors who subscribed to this issuance funding as well as an exit, at a cost to itself. The investors’ trades were facilitated by its brokerage JMFSL.

SEBI noted that JM Financials had approved loans totaling Rs 98 lakhs for 10 investors who were in the same category as the 47 applicants who had claimed an annual income of less than Rs 5 lakhs. A discrepancy in data existed within the loan documentation, with some applicants failing to provide the required advance margin.

In his order, SEBI Whole Time Member Ashwini Bhatia said, “We can also conclude from the data with us that JMFPL-NBFC was the seller, buyer and then a reseller of the NCDs of which JM Financial Limited was the Merchant Banker. They were able to seamlessly pull this off because they were the PoA (Power of Attorney) holders for many of the investors in question.”

The SEBI went on to say that all of the transactions in the public offering seemed to have been planned out in advance and carried out carefully to guarantee success and subscriber base.

As per SEBI statement, JM Financial’s conduct demonstrated “a total contempt for the limitations set by SEBI on offering incentives to investors for debt securities subscriptions.” Their activities have been attempted to be covered up with official legitimacy.”

Aaccording to SEBI, there was a violation of the regulatory mandate because JM Financial and its group companies promised certain investors guaranteed returns at a profit, which encouraged them to apply for the public issue. SEBI rules prohibit giving any incentive for making an application in any securities issue.

According to SEBI, the plan entailed encouraging individual investors to submit applications who otherwise would not have taken part in the offering by promising them a profit on the day of listing in addition to supplying funds.

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