Karvy Stock Broking licence suspended by NSE for non-compliance

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Today, the National Stock Exchange (NSE) suspended licence of Hyderabad based form Karvy Stock Broking following the company’s non-compliance of the regulatory provisions of the exchange. The company (Karvy Stock Broking) is hereby barred from trading in Debts, MFSS (Mutual Fund Service System), Commodity derivatives segments, Capital market, Currency derivatives, and future and options.

According to a leading news channel, the investors who have account with the brokerage firm will be able to transfers the accounts to another broker. According to the investigation undertaken by the NSE, it was found that the brokerage firm has sold off its client’s stocks via associated entities and diverted those funds.

Soon after NSE, the BSE (Bombay Stock Exchange) also suspended the company’s licence following noncompliance of the regulatory provision of the exchange. In a circular issued by BSE it was said ‘BSE has deactivated trading terminals of the trading member, Karvy Stock Broking in equity segment & debt segment and put them in RRM (Risk Reduction Mode) in equity derivatives, currency derivatives and commodity segment w.e.f. December 2, 2019’.

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Following a client default of Rs. 2,000 crore, SEBI (Securities and Exchange Board of India) had recently barred Karvy Stock Broking. SEBI had banned the company from on-boarding new clients and deal in trading for already on-boarded clients. Karvy Stock Broking had knocked on the door of Securities Appellate Tribunal (SAT) to seek relief and be allowed to tender securities for settlement. As SEBI has barred the company from using clients’ Power of Attorney (PoA), Karvy Stock Broking is unable to finalise the settlement process of the shares.

Securities Appellate Tribunal had asked SEBI to decide if the broking firm shall be given any relief and allowed to use clients’ PoA. SAT had asked SEBI to make a decision by Monday.

The depositories, with immediate effects, were asked by SEBI to not consider any instructions given by Karvy Stock Broking in pursuance of the PoA given to the Hyderabad firm by the clients. In additions, SEBI had also directed the depositories that they should not allow transfer of securities from the account of Karvy Stock Broking, which is the depository participant.

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NSE gave its preliminary report to SEBI based on the ‘limited purpose inspection’ that was conducted on Karvy Stock Broking on the 19th of August. The inspection covered the period starting from 1st of January.

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