What is Karvy Stock Broking Case?

Recently, the National Stock Exchange has declared the Karvy Stock Broking Limited (KSBL) as a defaulter for not complying with the regulatory provisions of the bourse and also expelled it from its membership. Bombay Stock Exchange (BSE) has also done the same before NSE.

Last year on November 22, the Securities and Commodity market regulator, SEBI had banned KSBL from taking any fresh business for allegedly misappropriating securities and money of its investors to fund Karvy Realty, its real estate arm.

Initially, SEBI estimated that Karvy had transferred Rs 1,096 crore to Karvy Realty. But as per the latest information by the National Stock Exchange, funds and securities worth Rs 2,300 crore of around 2.35 lakh KSBL investors have been settled till now.

What is Karvy Stock Broking Case?

As per the case, KSBL had unauthorisedly transferred securities of clients into one of its Demat accounts by misusing the Power of Attorney provided by its clients.

In November 2019, SEBI banned Karvy from conducting business activities for violating rules, and transferring shares of its client to itself and pledging them to raise money, which was directed to Karvy Realty, its real estate arm. More than 2.40 lakh clients of Karvy had complained to the regulator about money and securities not coming to their trading accounts. Karvy had misused the accounts of its clients without informing them, or reporting to the stock exchange.

The securities that are lying in Depository Participant (DP) accounts only belong to clients and can be pledged by them only. KSBL do not have any legal right to create any pledge on those securities.

In the report submitted by NSE to SEBI, the exchange said that KSBL has misused the power of attorney of its clients to sell client securities through entities controlled by it, and used the funds for its personal purposes.

To hide it, Karvy did not report the DP account (No. 11458979) in its submissions to the National Stock Exchange from January to August 2019.

National Stock Exchange

It is a stock exchange of India with its headquarters in Mumbai, Maharashtra. It was set up in the year 1992 as the 1st dematerialized electronic exchange of India. As of April 2018, it is the 11th largest stock exchange in the world with an overall market capitalization of over US$2.27 trillion.

Bombay Stock Exchange

It is an Indian stock exchange established in the year 1875. It is the oldest stock exchange in Asia. As of April 2018, it is the 10th largest stock exchange in the world with an overall market capitalization of over US$2.2 trillion.