Stock exchanges bar Karvy from trading

Stock exchanges have turned up the heat on Karvy Stock Broking after a preliminary investigation conducted by the markets regulator, Securities and Exchange Board of India (SEBI), found the brokerage outfit had misused clients’ securities to the tune of over ₹2,000 crore. The National Stock Exchange, the Bombay Stock Exchange, the Multi Commodity Exchange, and the Metropolitan Stock Exchange of India have suspended the trading licence of the brokerage outfit for all segments.

In its order dated November 22, SEBI has barred Karvy from registering new clients, while curtailing the extent to which the brokerage firm can use the power of attorney for existing clients. The order noted that Karvy illegally sold clients’ shares and transferred the proceeds to third party entities like Karvy Realty, and also used its clients’ securities for raising funds. The regulator directed stock exchanges to initiate disciplinary action against the company.

However, investors are permitted to square off any existing open derivative position until they open a new trading account with another broker. Reports suggest nearly 95,000 clients are awaiting payouts from the brokerage firm. National Securities Depository Limited (NSDL) said it has transferred shares worth ₹2,013.77 crore to the accounts of over 83,800 clients who have fully paid for these securities.

Meanwhile, the mess at Karvy Stock Broking may get murkier, as a forensic audit report estimates the scam could be of a larger magnitude.