The Securities and Exchange Board of india (SEBI) has taken significant action against JM Financial, barring it from acting as the lead manager for any Initial Public Offering (IPO). This interim order by SEBI follows the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india (RBI)'s decision to prohibit loans against shares and debentures of JM Financial Products Limited a few days earlier.
SEBI's action comes in the context of a routine investigation into the public issue of non-convertible debentures (NCDs) in 2023. The investigation revealed that investors who were allotted securities in the NCD issue sold them on the day of listing. The holding pattern showed a substantial decline in retail holdings due to a large number of securities being sold.
SEBI identified AK capital Services, JM Financial Limited, Nuvama Wealth Management, and Trust Investment Advisors as the lead managers for this issue. During the investigation, SEBI found that the subsidiary of JM Financial Products Limited acted as the counterparty to trades of these investors, providing funds for their investment in NCDs.
Consequently, SEBI's order restricts JM Financial from acting as the lead manager in any issue for the next 60 days. RBI's investigation into JM Financial Products revealed that the company provided loans to a specific group of customers for applying to IPOs and NCD offerings, with these loans granted at low margins. The company operated subscription applications, demat accounts, and bank accounts by holding a power of attorney from these customers.
RBI has banned JM Financial Products Limited from providing loans against shares and debentures and has also halted loans for subscribing to shares or debentures in IPOs. The RBI cited various flaws in JM Financial Products' loan-granting process, including violations of regulatory rules and governance issues. Following these regulatory actions, JM Financial's stock witnessed a significant decline.
