Karvy Stock Broking Case: 90% Investors Get Back Securities On Prompt SEBI Action
The headquarters of the Securities and Exchange Board of India in Bandra-Kurla Complex, Mumbai, India. (Photographer: Sajeet Manghat/BloombergQuint)

Karvy Stock Broking Case: 90% Investors Get Back Securities On Prompt SEBI Action

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Markets regulator Securities Exchange Board of India's prompt action against Karvy Stock Broking Ltd. has resulted in nearly 83,000 investors getting back their securities that were illegally transferred by the broker to its own account and were even pledged without any authorisation.

With the latest transfer by National Securities Depository Ltd., nearly 90 percent of Karvy’s investors have received their securities while the remainder will get after clearing their dues.

Karvy Stock Broking has taken Rs 600 crore in loans by pledging securities worth more than Rs 2,300 crore of 95,000 clients. Of these, nearly 83,000 investors have got back their securities, which were were illegally transferred by Karvy Stock Broking to its own account.

Also read: NSE, BSE Suspend Karvy Stock Broking With Immediate Effect

"As per the directions of SEBI and under supervision of NSE, securities have been transferred from the demat account named Karvy Stock Broking Ltd. to the demat accounts of respective clients who have paid in full against these securities. The number of such clients who have received securities are 82,599," NSDL said in a circular.

The timely action assumes significance as any delay could have led to invoking of pledge by lenders with whom the broker had pledged the clients' securities. According to market experts, timely action by SEBI has also averted a PMC Bank-like situation.

Leading stock exchanges NSE and BSE on Monday suspended Karvy's trading licence.

In an order passed on Friday, SEBI said that Karvy Stock Broking transferred without authorisation securities worth Rs 2,300 crore of more than 95,000 clients into one of its demat accounts, misusing the Power of Attorney given by its clients. The demat account was never disclosed by the firm in its filings with the stock exchanges.

SEBI also said that forensic audit of Karvy Stock Broking initiated by the NSE "is in progress and the full magnitude of the misutilisation of the clients' securities will be known after completion of the forensic audit".

The regulator, through an order passed on Nov. 22, had barred Karvy Stock Broking from taking new clients in respect of its stock broking activities and also prevented it from using the Power of Attorney given by clients after the broker was found to have allegedly misused clients' securities.

The order was a result of a preliminary report forwarded by the NSE on the non-compliances observed with respect to pledging/misuse of client securities by Karvy.

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