Investors fret as SEBI bars Karvy over alleged misuse of client funds

Mumbai, November 26

A ban by market regulator SEBI on Karvy Stock Broking from taking on new clients and executing trades for allegedly misusing client securities has unnerved the country’s retail investors.

The SEBI barred Karvy on Friday last after a preliminary investigation by the National Stock Exchange (NSE) showed the brokerage pledged and sold some of its client securities to raise funds for its own use, without client authorisation and in violation of new rules.

Karvy said in a statement over the weekend that there was no “mis-utilisation” of client securities.

Some investors are considering a move to big, bank-owned brokerages even if they cost more, according to three financial advisers, bucking a recent trend towards discount brokers.

“Worried clients have been calling me and I’ve told them they may shift if they are more comfortable with a bigger brokerage,” said SR Srinivasan of financial planning firm SriNivesh Advisors, although he said out of the handful that have called none had yet shifted.

The NSE had been investigating trades at Karvy following several complaints by investors who said the brokerage was not granting fund transfer requests. The SEBI in June announced a ban on brokers pledging their clients’ securities to banks or non-banking financial companies to raise funds.

A total of close to $278.67 million is at stake, according to SEBI, including around Rs 1,000 crore transferred by Karvy to its group company Karvy Realty Pvt Ltd. — Reuters