After capital market watchdog SEBI banned Karvy Stock Broking (KSBL) from taking new clients with respect to stock broking activities for alleged misuse of clients' securities, financial advisors point out that existing investors should take immediate steps to safeguard their holdings. Karvy was found to move clients’ pledged shares (against which they receive margin funding from the broker) to its own account via off-market deals and transferred a net amount of Rs 1,096 crore to its group company, Karvy Realty Private Limited between April 1, 2016, and October 19, 2019, as per SEBI’s findings.
"The Karvy episode is another black spot in the financial market history wherein investors' interests were compromised by promoters for personal gains questioning at the very first routine checks and balances done by the auditors, SEBI is tightening the regulations for the intermediaries so that such eventualities do not happen again but we hope the interest of the investors in Karvy will be protected by SEBI through a formal mechanism," Umesh Mehta, Head of Research, Samco Securities told Financial Express Online.
What investors should do now
Investors should select the brokers who are large and have brands and at the same time have professional boards so that they can be safe, Umesh Mehta of Samco Securities said. According to independant advisor Basavaraj Tonagatti, existing investors of Karvy Stock Broking should should now move their holdings to another demat account. "The issue at hand is indeed very grave and concerning. Currently, Karvy manages around 2,44,000 clients (As per NSE Data) and many have complained openly in social media that they are not receiving the payouts," Basavaraj Tonagatti told Financial Express Online.
The expert suggests investors to move to some other Demat providers immediately. "Transfer all your holdings with Karvy to the new Demat Account. It may take time. But a wise decision," he noted. Further, investors should also transfer all their idle cash lying in their demat account to their bank account. Further, in case the investors have noticed any major irregularity with respect to their demat account, then they immediately complain against Karvy using the SEBI’s scores platform, he said.