Karvy Stock Broking's licence suspended by NSE for non-compliance

The reason was non-compliance of regulatory provisions across all segments, viz; capital market, debt, currency and commodity derivatives, futures & options and MFSS

Karvy Stock Broking's licence suspended by NSE for non-compliance

The National Stock Exchange (NSE) suspended Karvy Stock Broking Limited (KSBL) on account of non-compliance of regulatory provisions across all segments, viz; capital market, debt, currency and commodity derivatives, futures & options and MFSS, effective from 2 December 2019. 

What happened?

An investigation found that KSBL had misused client stocks pledged with it through its associated entities and diverted the funds of almost 95,000 clients totalling over Rs 2300 crore to finance its real estate arm. Earlier capital markets regulator SEBI had barred KSBL from taking on new clients or executing trades for existing clients, on account of the unauthorised activity.

Following NSE’s move, BSE too has deactivated KSBL’s trading terminal and has been put in RRM mode (Risk Reduction Mode). Investors in the F&O segment will be able to square off their positions but for future trades, including equity and debt, the clients will have to migrate to other brokers.

Related: Looking for a stock broker? Here’s a complete guide for beginners

What is the resolution?

Karvy has requested the SAT (Securities Appellate Tribunal) to allow the firm to finish the settlement process for clients. SAT has however asked SEBI to take a call on whether KSBL can be given in interim relief to use the clients PoA (Power of Attorney), which it had earlier misused and pledged to banks for personal loans.

Additional developments suggest that close to 83,000 clients have received their securities worth 2013. 77 crores back while the remaining accounts are in dispute and will receive their money/ securities after clearing dues with KSBL. Additionally, SEBI has altered all depositors to not allow KSBL from using their PoA, and has asked other Depository Participants (DP) to halt the transfer of any securities from KSBL’s depository services. 

Related: 7 Mistakes to avoid when choosing online stock brokers 

SEBI’s timely intervention has averted another PMC bank like issue and most investors have received their securities before things got really bad. Here are some important things to know before investing in the stock market.

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