Stocks

No misuse of clients’ securities: Karvy

G Naga Sridhar Hyderabad | Updated on November 23, 2019 Published on November 23, 2019

The SEBI order, “in no way prevents us from continuing to transact business on behalf of our existing clients as per their instructions, and in furtherance of investor best interests,” Karvy said

The Karvy Group said on Saturday that there “is no instance where there has been misutilisation of client securities.”

Referring to various media reports in the wake of the SEBI’s order on Friday barring Karvy Stock Broking from acquiring new customers in wake of alleged ‘defaults’ to clients, it said a recent routine inspection in August 2019 was carried out by SEBI, the Exchanges and the depositories.

Temporary order , says Karvy

Upon submission of the preliminary inspection report by NSE to SEBI, the regulator issued an ex-parte ad-interim order dated November 22, 2019, issuing directives in investor interest.

Also read: SEBI bans Karvy Broking for nearly Rs 2,000 crore in defaults

“The nature of this order is such that by definition, it is an ‘interim’ directive and not a final finding. The order itself states emphatically, that this is in response to preliminary findings and is subject to further review, upon a more comprehensive audit and investigation. The order further gives us the right to respond to each and every preliminary observation within a period of 21 days and is thus only a temporary order restraining some actions till December 16th, 2019 when we will represent our position to SEBI,” it said.

Only relevant strictures that have been passed against the organisation which were “temporary hold on the on-boarding of new clients, and additional oversight and monitory from NSE and BSE,” it said.

The SEBI order, “in no way prevents us from continuing to transact business on behalf of our existing clients as per their instructions, and in furtherance of investor best interests,” it said.

‘Fully compliant’

This order, which was issued on the basis of observations made by the NSE during its audit, mentioned a transfer of Rs 1,096 crore over a three year period to an associate and subsidiary company of Karvy Stock Broking Ltd (KSBL) — Karvy Realty.

“The quantum mentioned is incorrect. Karvy Realty is one of the group companies and investments were made in other subsidiary companies through this entity. We are of the firm belief that the investments made through owned funds of the group and borrowings other than the pledge of securities were fully compliant with the relevant provisions and directives of the regulator during the period that they were made,’’ Karvy said.

“We want to reiterate once again that nowhere in the SEBI order has an amount of Rs 2,000 crore been mentioned, and that this number together with the word default is extremely misleading and damaging to our reputation,’’ it claimed.

“There is no ban at all whatsoever, except a restriction on on-boarding new customers for a 21 day period. This is completely false and we will continue to service all our existing customers uninterruptedly,” it said.

The diversification of the group into data-driven and IT based services was part of a well-crafted strategy endorsed by our bankers as a way of safeguarding ourselves from market volatility and our diversification has had no impact whatsoever on the broking business, it said.

Karvy will be providing a detailed explanation and clarifications to SEBI as required. “There is no instance where there has been misutilisation of client securities. We have a track record of resolving investor complaints, and while we acknowledge delays in handling and resolution of certain cases, to characterise it as misutilisation is a travesty,’’ it said.

Karvy, however, acknowledged that as per prior to SEBI directives it used to pledge shares from time to time in full compliance with the then directives as was the standard practice across broking houses. “But following the issuance of fresh directives in 2018-2019, we have commenced the process of reducing the quantum,” it said.

Published on November 23, 2019
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