BSE, NSE, MSEI Suspend Karvy Stock Broking Ltd's Trading License In All Segments For Not Complying With SEBI Norms

The National Stock Exchange of India Ltd (NSE), the Bombay Stock Exchange, the Multi-Commodity Exchange (MCX) as well as the Metropolitan Stock Exchange of India Limited (MSEI) have all put out circulars stating that they have suspended Karvy Stock Broking Ltd’s trading license for all segments due to non-compliance with exchange and Securities and Exchange Board of India (SEBI) norms.

The action has come after a SEBI order on November 22 held in its preliminary finding that Karvy misused shares of its clients and used them for other purposes by selling these and transferring the proceeds to its other businesses, like Karvy Realty Ltd.

It may be recalled that SEBI had had already barred Karvy from taking on new clients and limited its use of Power of Attorney strictly for its existing clients. The SEBI had also directed stock exchanges to initiate disciplinary proceedings against Karvy.

The latest action, which is a suspension order, is the culmination of disciplinary proceedings, stock exchanges have found that Karvy did not segregate broker securities from client securities as well as used client securities to raise funds for other businesses run by the brokerage.

After the NSE suspension order, Karvy's existing investors have been unable to square off their derivatives position.

Meanwhile, the mess at Karvy appears to be much bigger than believed earlier, even as the SEBI has estimated that the misuse of client securities by the brokerage to be at Rs 2,800 crore, which is 40% more than an earlier estimate of Rs 2,000 crore.

According to initial estimates of a forensic audit, as cited by the lawyer appearing on behalf of the SEBI at the Securities Appellate Tribunal (SAT), the quantum of funds misused by Karvy is much larger.