Sebi penalises BSE, NSE for laxity in detecting misuse of shoppers’ funds by Karvy Stock Broking

Capital markets regulator Sebi has penalised inventory exchanges — BSE and NSE — for “laxity” on their half in detecting misuse of shoppers’ securities value Rs 2,300 crore by Karvy Stock Broking Ltd (KSBL).

In two separate orders, the Securities and Exchange Board of India (Sebi) has imposed a nice of Rs 3 crore on BSE and Rs 2 crore on NSE.

The matter pertains to KSBL misutilising shopper securities value Rs 2,300 crore, belonging to greater than 95,000 shoppers, by pledging them from only one demat account. The funds raised towards the pledge had been utilized by KSBL for itself and its group entities.

KSBL and its group entities utilised this cash for elevating Rs 851.43 crore from 8 banks/NBFCs.

“Without doubt, it was KSBL which misused clients’ securities by unauthorisedly pledging them, and was thus responsible for loss caused by pledging securities which it did not own, including loss to investors as well as loss to banks and NBFCs who loaned funds to KSBL against securities which did not belong to KSBL,” as per the orders handed on Tuesday.

Sebi famous that KSBL being member of BSE and NSE was below regulatory supervision of the exchanges. There was “laxity” on the a part of exchanges, which resulted in delayed detection of the misconduct by KSBL and the bourses should be held accountable for a similar.

Accordingly, the regulator has levied fines on the exchanges for the delay in detection of misuse of shopper securities by KSBL.

The orders come after Sebi together with NSE and BSE performed a joint inspection of KSBL from June 2019. Subsequently, a forensic auditor was appointed by NSE and preliminary report was forwarded by it to Sebi in November 2019, based mostly on which the regulator handed an interim order after which confirmatory order on the non-compliances noticed with respect to the pledging/misuse of shopper securities by KSBL.

In its 2019 order, Sebi had directed depositories to permit switch of securities from the one demat account to respective useful homeowners who had paid in full towards the securities below the supervision of NSE. Following the Sebi order, securities had been returned to shoppers.

In December 2019, National Securities Depository Limited had introduced that securities had been returned to 82,559 shoppers from the KSBL demat account. Further, NSE, in November 2020, had mentioned that funds and securities value Rs 2,300 crore belonging to KSBL buyers had been settled.

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