Sebi penalises BSE and NSE for laxity in Karvy scam
SEBI Board has approved amendments to the regulations.
The Sebi on Tuesday night imposed a penalty of ₹3 crore on BSE and ₹2 crore on NSE for supposed lax approach in detecting the misuse of client securities by Karvy Stock Broking
MUMBAI : The Securities and Exchange Board of India (Sebi) on Tuesday night imposed a penalty of ₹3 crore on BSE and ₹2 crore on NSE for supposed lax approach in detecting the misuse of client securities by Karvy Stock Broking Ltd.
The matter pertains to Karvy unauthorisedly transferring securities worth Rs. 2300 crores of more than 95,000 clients into just one demat account, named Karvy Stock Broking Ltd (BSE). Further these securities were unauthorisedly pledged by thebrokerage firm for itself and its group entities to raise Rs.851.43 crores from 8 banks/ non-banking financial services firms (NBFCs).
Sebi in two separate orders found the exchanges lax in early detection of the misuse of clients’ securities by the brokerage firm. Sebi in its order said that the exchanges followed a ‘casual approach’ while inspecting the broker in the previous years.
The orders also lay bare how Karvy exploited the gaps in information reconciliation by market infrastructure institutes (MIIs).
MIIs include exchange and depositories.
The demat account used by Karvy to affect the large-scale transfer of investors’ securities was supposedly tagged as a BSE margin account.
“BSE did not examine this account at all, leading to a gap in supervision which allowed KSBL (Karvy) to continue pledging client securities through this account,” Sebi said in its 64 page order against BSE.
“It escaped scrutiny by BSE on 2 counts – first one being failure to check nomenclature of account by BSE and secondly, failure to scrutinize the alerts on off-market transfers pertaining to this account shared by NSDL with BSE,” Sebi order added.
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