The regulator’s order on Thursday follows the earlier restrictions it had imposed on the firm through an interim order issued on March 7, which JM Financial did not contest.
The Mumbai-based financial services firm has also given an undertaking to Sebi that its subsidiary, JM Financial Products will completely discontinue its IPO financing business, according to the order
“Whilst RBI has directed JM Products to discontinue initial public offering (IPO) financing business only temporarily till RBI conducts special audit and resultant issues are resolved, the Board of Directors of JM Products has decided to voluntarily discontinue IPO financing business completely,” said JM in its submission to Sebi.
JM Financial said it was keen to resolve the case with Sebi through the settlement mechanism. In an intimation to stock exchanges on Thursday evening, the company said:”The Order also clarifies that the directions contained in it is limited to the company’s role as a lead manager to public issue of debt securities and does not relate to other activities of the company, including acting as a lead manager to public issue of equity instruments.”The case relates to SEBI’s probe into public issues of non-convertible debentures (NCD) last year. During the examination of a particular issue, it noticed that JM Financial was one of the lead managers to a public issue of NCDs where a significant portion of the public issue was allotted to retail shareholders.Many of the retail shareholders, who were allotted securities pursuant to the issue, exited on the listing day itself.
When the trading data on the listing day was analyzed by Sebi, it observed that the counter party to the trades of these retail investors was JM Financial Products, an NBFC part of JM Group.
The regulator alleged that JM Financial Products subsequently on the very same day sold down the securities, purchased from the retail investors, at a loss.
It was also noted that the applications of a significant number of these retail investors were routed through its broking arm JM Financial Services ,and their applications were funded by JM Financial Products.
Sebi further alleged that JM Financial Products had the power of attorney to operate the accounts of the investors being funded by them.
“…it prima facie appeared that JM group entities were incentivizing certain investors to apply for securities in issues managed by JM Financial,” Sebi said in its order.
