India's markets regulator said on Thursday it had barred JM Financial from taking on new mandates for bond issues.
The Securities and Exchange Board of India (SEBI) said in an interim order that JM Financial provided funds to individual investors to invest in public debt issues while simultaneously assuring them of an exit at a profit on the listing day.
JM Financial did not immediately respond to a Reuters request for comment on SEBI's move, which followed a preliminary investigation into the company and its non-bank finance business while managing public debt issues.
In a separate order on Tuesday, India's central bank told JM Financial's non-banking unit to stop any form of financing against shares and debentures, including loans to customers to subscribe to initial public offerings.
Prime Databas ranks JM Financial as among the top 15 arrangers for the private placement of bonds in India so far this financial year, as well as one of the most active lead managers for public issues of debt.
SEBI's order said JM Financial can, however, act as lead manager for public debt issues for another 60 days.
JM Financial, together with connected entities "were found to have given an assured exit to certain investors at a profit thereby incentivising them to apply in the public issue in contravention of regulatory mandates," SEBI said in its order.
In some cases, entities connected to JM Financial acquired the securities themselves to provide investors that assured exit and subsequently sold them at a loss.
The watchdog said JM Financial had told it that this was done to create liquidity for the bonds in question.
SEBI said it had examined loan applications by some investors and found discrepancies such as amounts far exceeding annual income, data mismatches and a lack of upfront margins.
JM Financial, as a merchant banker, "entered into the transaction confident in the knowledge that it had all the levers at its command and control to ensure success of the public issue," SEBI said in its order.
