Mumbai based NSE: National Stock Exchange recently has declared the Karvy Stock Broking Ltd as a defaulter for not complying with the regulatory provisions of the bourse and also expelled it from its membership.

BSE has also listed as a defaulter before NSE.

BSE is Bombay Stock Exchange

NSE is National Stock Exchange

SEBI is Securities and Commodity market regulator

DP is Depository Participant

On 22 November year 2019, the SEBI had banned Karvy Stock Broking Ltd from taking any fresh business for allegedly misappropriating securities and money of its investors to fund Karvy Realty, its real estate arm.

Initially, the SEBI estimated that Karvy Stock Broking had transferred Rupees 1,096 crore to Karvy’s Realty services. But according to the NSE current information, funds and securities worth Rupees 2,300 crore of around 2.35 lakh Karvy investors have been settled till now.

Explaining Karvy Stock Broking Case

As per the case, Karvy Stock Broking Ltd 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, Securities and Commodity market regulator 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’s Realty services, its real estate arm. More than 24,00,00 clients of Karvy Stock Broking had complained to the regulator about money and securities not coming to their trading accounts. Karvy Stock Broking had misused the accounts of its clients without informing them, or reporting to the stock exchange.

The securities that are lying in DP accounts only belong to clients and can be pledged by them only. Karvy Stock Broking do not have any legal right to create any pledge on those securities.

In the report submitted by National Stock Exchange to SEBI, the exchange said that Karvy Stock Broking 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 Stock Broking did not report the DP account (No. 11458979) in its submissions to the NSE from January to August year 2019.

About National Stock Exchange

NSE is a Mumbai based stock exchange of India. It was established in the year 1992. It was established first 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.

About Bombay Stock Exchange

BSE Limited is an Indian stock exchange. It was established under British Indian Government in 1875. The BSE located at Dalal Street, Mumbai. Bombay Stock Exchange 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$ 2.1 trillion.