NSE declares Karvy a defaulter a year after its payment ‘failure’ came to light

Nearly 12 months after it came to the light that Karvy Stock Broking, one of the largest brokers which catered to the retail segment of investors but defaulted on its payment obligations, the National Stock Exchange has now declared the broker as a defaulter.

Although the NSE has not disclosed the amount that Karvy has to pay back its clients, experts and regulatory officials say the broker still owes several hundred crores of rupee in dues.

In a notice on Tuesday, the NSE said it had expelled Karvy from its membership and declared it a defaulter.

Neither market regulator SEBI nor NSE has put out the exact amount that Karvy still owes to its investors.

SEBI stepped in

In November last year, SEBI had barred Karvy from taking in new clients after it found that the broker had transferred shares worth more than ₹2,300 crore of over 95,000 clients to its own account and further used it to avail bank loans. Last week, the NSE said it had settled client claims worth ₹2,300 crore. However, several thousand investors are still claiming money from Karvy, regulatory officials said.

When stock brokers default on their payments, it becomes the responsibility of the stock exchanges to settle their claims. But settlement of client claims can only happen when an exchange declares the broker as a defaulter.

Recently, Ajay Tyagi, Chairman, SEBI, had said the regulator will not tolerate if any exchange delays declaring brokers as a defaulter.

Tyagi had also agreed with the concern raised by BusinessLine that exchanges were delaying the declaration of a broker as a defaulter due to shortage of the investor protection fund (IPF), which is used to settle client dues. This month, SEBI asked the NSE to raise its IPF corpus from ₹594 crore to ₹1,500 crore.

Currently, the NSE has capped the payment of dues at ₹25 lakh to each client, whose brokers have defaulted. Experts say, a cap on default claim amount is making a mockery of investors who are claiming their rightful money. The NSE has announced that it will enhance the total corpus to ₹1,200 crore by November 26. Further, ₹300 crore will be maintained as a reserve fund to be transferred to IPF Trust to meet any shortfall in IPF.

The BSE has more than ₹800 crore in its IPF kitty.

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