Market regulator SEBI has held Indian Clearing Corporation (ICCL) and NSE Clearing Corporation (NCCL), the trade clearing and settlement arms of the BSE and the NSE, responsible for violation of norms in the matter involving Karvy Broking’s funds mismatch. SEBI has imposed a fine of ₹50 lakh and ₹25 lakh against ICCL and NCCL for not adhering to the early warning mechanism (EWM) rules.
On March 22, 2019, NSE had observed that in 70 per cent of cases of (client) running accounts, they were receiving alerts of mismatches from depositories and they were finding it difficult to act on such a large number of alerts. This mismatch was nothing but client security deposited with the broker and the broker’s deposit with the exchange.
On April 9, 2019, SEBI called for reconciliation of holding statements with depository data for all the market infrastructure institutions. In this, huge mismatches were observed for securities reported by Karvy Stock Broking and actual balance in its demat accounts. This blew the lid off the scam and told SEBI that Karvy had diverted client securities for availing loans.
A clearing corporation receives the information about the mismatch from the respective depositories and after consolidation passes the same to the concerned stock exchanges. But SEBI observed that both the depositories should not only have shared the information of the mismatch with their respective exchanges but also the rival bourse.
This was not done by both NCL and ICCL since they shared the data only with their concerned exchanges. But SEBI said the clearing corporations were supposed to share information with both the exchanges and hence they were fined.