Market regulator SEBI says that Karvy, one of the largest retail segment stockbrokers, misutilised securities worth ₹2,300 crore belonging to more than 95,000 clients. The SEBI had imposed ₹3 crore fine on the BSE and ₹2 crore on the NSE for their failure in adequate checks and balances. In November 2019, BusinessLine first broke the story about Karvy’s ₹2,000 crore worth of client default.
A SEBI order issued late in the evening on Tuesday said that the Karvy Stock Broking had pledged securities worth ₹2,873 crore, against which funds of ₹851.43 crore were raised from eight banks and NBFCs. The scale of misuse by Karvy points to the loss to investors, which can potentially be caused when irregular conduct is not detected on time.
SEBI has said that Karvy, a member of BSE and NSE, was under the regulatory supervision of the two exchanges.
“There was laxity on the part of BSE and NSE, which resulted in delayed detection of the misconduct by Karvy and they need to be held accountable for the same.”
Further, SEBI said that Karvy undoubtly misused client securities by unauthorisedly pledging them and was thus responsible for loss caused which it did not own, including the loss to investors, banks and NBFCs who loaned funds to Karvy against securities that did not belong to the broker.