The Securities and Exchange Board of India (Sebi) on Thursday barred JM Financial from accepting new mandates to act as a lead manager for the public issue of debt securities.

The action, which is not entirely unexpected, comes just two days after the Reserve Bank of India (RBI) restricted JM Financial Products Ltd (a subsidiary of JM Financial) from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO), with immediate effect.

This came after the apex bank observed certain “serious deficiencies’’ with regard to loans sanctioned by the company for IPO financing and non-convertible debenture (NCD) subscriptions. It was also on the basis of information shared by Sebi.

In a 22-page interim ex-parte order, Ashwani Bhatia, wholetime member, Sebi said that in case of existing mandates, JM Financial can continue to act as a lead manager for public issue of debt securities for a period of 60 days.

Sebi said that its clampdown on the non-banking finance company came after it undertook a routine examination of the public issues of NCDs during the year 2023. The investigation focused on the activities of JM Financial and its related entities in a particular debt issue.

The market regulator had observed that in a particular issue, a significant number of individual investors sold the securities allotted to them on the day of listing itself.

Further, the holding pattern of the securities showed that a very large percentage of securities issued changed hands on the day of listing.

As a result of such a sale, the retail ownership came down sharply, which was unusual.

The scheme, Sebi prima facie noted, involved getting individual investors, who would otherwise not have participated in the issue, to make applications not just by providing funds to them but also by assuring them an exit at a profit on the listing day.