Market regulator Securities and Exchange Board of India (Sebi) on Friday night barred Karvy Stock Broking Ltd from acquiring new clients for its stockbroking business, following the alleged misuse of clients' securities worth ₹2,000 crore.
This is one of the biggest cases of broker defaults in the equity segment and despite numerous regulations, Karvy is alleged to have misused client collateral for its own trades.
In an effort to prevent further misuse of clients securities, Sebi barred the Hyderabad-based brokerage from acquiring any more clients till the regulator completes its investigations. Karvy was also been barred from acting on behalf of its existing clients.
The practice has been rampant as many brokers enjoy powers of attorney on their clients’ demat accounts and are authorised to transfer client securities to the collateral account.
The watchdog directed NSDL and CDSL not to to act upon any instruction given by Karvy in pursuance of power of attorney given by its clients. However, in view of the fact that Karvy manages a large number of clients, Sebi is ensuring smooth operations by asking depositories to monitor the movement of securities into and from the DP account of clients of KSBL.
KSBL is among the country’s top 10 brokerage companies, with 244,000 customers. Broking is perhaps the only sizable business left with the group after it sold the registrar and transfer agency, Karvy Fintech, to American private equity investor General Atlantic for about Rs 1,000 crore last year. If any misuse of client money and shares by KSBL is established in Sebi’s investigation, it will be hard for the company to regain client trust, central to the business.
Now, Sebi has trained guns on more brokers for misusing clients’ shares.Sources say the issue is not limited to just Karvy Stock Broking, with over three dozen more brokers under lens for misappropriating client funds to the extent of Rs 10,000 crore.
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