The National Stock Exchange (NSE) on Monday suspended Karvy Stock Broking (KSBL) for non-compliance of regulatory provisions of the exchange in capital markets, futures and options, currency derivatives, debt market, MFSS (Mutual Fund Services Systems) and commodity derivatives segment. The move comes after markets regulator, Securities and Exchange Board of India (Sebi) barred the company from getting new clients for stock broking activities for alleged misuse of client securities.
Earlier, NSE in its annual inspection of Karvy's trading accounts reported discrepancies in trading between April 2016 and October 2019. The brokerage firm's total client default amount is estimated to be around Rs 2,000 crore. Experts believe NSE's decision to suspend the brokerage was to prevent further damage to clients' account, though it leaves the existing clients of Karvy "high and dry" unless the account is settled.
A consultant with Delhi-based law firm said Karvy has only two options available - to capitalise their assets, or raise funds from banks to settle the accounts.
"As long as the asset quality offered by Karvy is good, they will be able to raise funds from banks. Second, they can capitalise their movable or immovable property to raise equity as well. If Karvy fails to settle the accounts in 30 days, the clients have the option to take Karvy to insolvency court," the consultant said.
On November 22, Sebi barred Karvy from using the power of attorney (PoA) after the broker transferred clients' money for other purposes and indulged in trade not authorised by them. Following these curbs, Karvy made representations to Sebi to allow it to use the PoA as in its absence it was unable to settle trade of clients and suffered losses of Rs 8 crore in the past one week. Subsequently, it moved SAT on Thursday to request Sebi to act on its representation. On November 29, Sebi refused an interim relief to Karvy on PoA.