Karvy suspended for flouting regulatory rules

Karvy suspended for flouting regulatory rules
MUMBAI/HYDERABAD: Top exchanges NSE and BSE on Monday suspended Karvy Stock Broking, one of the biggest in India in terms of number of investor accounts, from all market segments for violating compliance norms by misappropriating shares and funds of clients worth over Rs 2,300 crore.

Karvy Broking’s clients now have the option to square off their positions in the derivatives segments, sell their stocks or migrate to other brokers. The exchanges are working to remove the hurdles that Karvy’s clients could face, top executives at the bourses said. As of October, Karvy Broking had nearly 2.5 lakh investor accounts and was placed sixth among the top brokers in India, NSE data showed.

A notice by NSE said Karvy Broking has been suspended from “capital markets, futures and options, currency derivatives, debt, MFSS (mutual fund service segment) and commodity derivatives” for non-compliance with regulatory provisions. Following NSE’s decision, the BSE too suspended the broker, and put trades from its clients on a risk reduction mode (RRM). In the RRM mode, all orders by brokers and their clients are subjected to various checks and balances and are allowed to go for trading after validations by the bourse’s compliance team.

On November 22, Sebi had banned Karvy Broking from taking new clients for violating rules relating to segregation of clients’ funds and securities with its own fund and securities. Subsequently, the broker moved the Securities Appellate Tribunal (SAT), which on November 28 directed Sebi to look into Karvy’s plea for a limited use of power of attorney (PoA) given by its clients for settlement of their trades. On November 29, the regulator rejected the broker’s plea subsequent to SAT direction.

According to Sebi’s first order, which was based on an investigation by NSE that had limited scope, the broker had illegally pledged its clients’ shares with bank and then channelised the funds to its real estate arm. Sebi had on June 20 asked brokers to segregate clients’ funds and securities by September 30 and report compliance. According to sources, Karvy Broking and a few more brokers had failed to comply with the same. Following this and also because of some complaints by the broker’s clients, NSE started investigating the firm and found gross violations of Sebi’s orders. According to Sebi, the magnitude of Karvy’s wrongdoing was over Rs 2,300 crore.

If you have been hit by the suspension of scandal-hit Karvy Stock Broking, here are two ways you could transfer your shares to another broker:

Approach a new broker with details of your bank and broking account with Karvy Stock Broking. Also, give them your permanent account number (PAN). Since you are an existing broking client, you are already compliant with the KYC requirement under Sebi rules. Give instructions to the new broker to shift your account from Karvy. Make sure if your existing broking account is in single name, the new one should also be in the same name. In case it is in multiple names, the new one should also be in multiple names and in the exact order as in the existing account.

Alternately, you could open an account with another broker with PAN and details of bank account and residential address. After the new account is opened, give the broker the details of your shares through the delivery instruction slip (DIS) that Karvy Stock Broking has given you. After the new account is opened, the shares could be transferred in a day or two.