NSE, BSE Suspend Karvy Stock Broking With Immediate Effect

India's top exchanges suspended Karvy Stock Broking Ltd. from operations with immediate effect for not complying with regulatory norms.

The stock broker has been barred from participating in the cash market, equity, commodity and currency derivative, debt and mutual fund service system segments, the National Stock Exchange of India said in a notification posted on its website.

BSE Ltd., too, said that it has deactivated Karvy Stock Broking's trading terminals in equity and debt segments from Dec. 2, adding that the terminals have been put in a risk-reduction mode in equity derivatives, currency derivatives and commodity segments.

The moves come within weeks after markets regulator Securities and Exchange Board of India barred Karvy Stock Broking from signing up new customers and directed depositories to not act on any instruction from the broker.

The Securities Appellate Tribunal subsequently asked SEBI to consider Karvy's plea seeking nod to conduct certain transactions on behalf of clients, but the regulator upheld its previous order.

SEBI had in June come out with a circular which required all brokers to unpledge all client securities, if pledged by the broker, by Sept. 30. The circular also required brokers to transfer all securities held by them to their respective client's accounts. Any pledge created on the client's securities after Oct. 1 was considered violation of regulations.

SEBI relied on a report submitted by the NSE for its interim order. The NSE report mentioned that Karvy Stock Broking failed to disclose its demat account in its filings with the bourse. It also said that Karvy Stock Broking used this account to transfer securities worth Rs 2,300 crore of more than 95,000 clients, in an unauthorised manner by misusing the power of attorney provided by the clients.

The report said the broker even pledged shares of the clients which were fully paid for, to generate funds for its own group entities.

NSE has already initiated a forensic audit of Karvy Stock Broking and full magnitude of the misutilisation of the clients' securities will be known after audit completion, the regulator said.

SEBI while passing the order barred the broker from use of Power of Attorney given to it by its clients. Karvy Stock Broking's clients, who seek to sell securities through the broker, may do so by using electronic or physical platforms, the regulator said.