Confirmatory Order by SEBI on JM Financial Limited

Introduction

On 7th March,2024, SEBI made an interim order against JM Financial Limited (JMFL) for its deviations in public issuance of Non-convertible debenture (NCD) . SEBI has outlawed the JMFL from the role of Lead Manager from onboarding any new responsibility as lead manager for any kind of public debt securities issues. In case of existing responsibilities as a lead manager, the lead manager can continue his responsibility for a duration of 60 days from the SEBI order date. 

SEBIs Evidence against JMFL

The case was JMFL was in the responsibility of lead manager for a public non-convertible debenture issue. In that public issue, majority stakes were allotted to retail shareholders who exited from the share ownership on the same day of listing.  When observed and analyzed, it was noted that the corresponding party of the exited retail shareholders were JM Financial Products Limited (JMFPL) , a NBFC, which is a subsidiary of JM group. It was also observed that the majority of the retail shareholder's applications were routed through JM Financial Services Limited, a stock brokerage , one of the subsidiaries of JM Group. JMFSL had the power of attorney to operate a retail shareholder's account who exited on the listing date. On analysis, SEBI concludes that JM Group would have persuaded the retail investors to apply for a public NCD issue since it was managed by JMFL.

Response by JMFL and Hearing

On 28th March, 2024, JMFL filed a response to SEBI which was allowed for personal hearing on 24th April, 2024. From JMFL side, the advocate requested SEBI to consider the voluntary undertakings taken by JMFL, without proceeding with the interim order. These undertakings included that JMFL will not take any new responsibility as lead manager for any public NCD issue until 31st March, 2025.

The Undertaking by JMFL

The JMFL undertaking to SEBI is as follows

• Not taking any new responsibility as lead manager for public NCD issue until 31st March, 2025.

• Voluntarily withdrawing from IPO financing business.

• Updating existing systems and processes to prevent any misconduct.

• Providing enough training for their personnel who deal in IPO mandates.

• Conducting periodic workshops for their personnel to be updated on regulations.

• By 31st December,2024, JFML will share a compliance certificate to SEBI .

• Cooperating fully with SEBI’s investigation on this matter.

• Cooperating with SEBI's authority to continue the investigation.

SEBI’s Directions

With the JMFLs voluntary undertaking, SEBI has issued an interim order which will continue until the completion of SEBI's investigation. 

SEBIs directions are as follows:

JMFL will not undertake any new responsibility as a lead manager for public debt securities issues until 31st March, 2025, or further notice by SEBI.

Conclusion

SEBIs confirmatory order will ensure the  securities market integrity . SEBI will ensure that JMFL adheres to the voluntary undertakings provided and cooperates fully with SEBI’s investigation. The continuation of these directions will help maintain market stability and protect investor interests.

 

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Frequently Asked Questions

Why did SEBI issue an interim order against JM Financial Limited (JMFL)?

SEBI observed potential irregularities in JMFL's role as lead manager in a public NCD issue. Many retail shareholders exited the NCDs on listing day, and the corresponding party was JM Financial Products Limited (JMFPL), an NBFC under JM Group.

What restrictions did SEBI impose on JMFL in the interim order?

SEBI outlawed JMFL from taking new responsibilities as a lead manager for any public debt securities issues. JMFL can continue with existing responsibilities for 60 days from the order date.

What voluntary undertakings did JMFL provide to SEBI?

JMFL undertook not to take any new lead manager roles for public NCD issues until March 31, 2025. They also agreed to withdraw from IPO financing, to update system processes, and train personnel on regulations.

How will JMFL ensure compliance with SEBI’s regulations?

JMFL will enhance systems and processes to prevent misconduct, conduct regular training workshops, and submit a compliance certificate to SEBI by 31st December  2024. They will also cooperate fully with SEBI's investigation.

What is the outcome of SEBI's confirmatory order for JMFL?

The confirmatory order maintains SEBI’s interim restrictions on JMFL until the investigation is complete. This ensures market integrity, stability, and protection of investor interests while JMFL adheres to its voluntary undertakings. Also, the share price of JMFL dropped down after SEBIs orders.