NEW DELHI: Markets regulator SEBI has dismissed Karvy Stock Broking's plea to use the power of attorney for the limited purpose of transfer of securities to the pool account for settling the clients' pay-in obligations to stock exchanges.
SEBI in its order dated November 29 noted that clients of stock brokers are free to avail various modes for giving instructions to the brokers including through power of attorney (PoA) and giving instructions through PoA is not mandatory.
SEBI noted that its circular on Delivery Instruction Slip (DIS) provides detailed framework for instructions for delivery of securities such as instruction received from illiterate persons/from blind persons/though fax, SPEED-e facility, etc.
A DIS is used by sellers of securities to instruct their depository participant to debit their demat account. "If any client seeks to give instruction in physical form, he may also do so by sending the DIS through fax to depository participant and original DIS may be sent within three days of the fax. The client who seeks to send physical DIS, in addition to sending it by fax has the option to deliver the same at the offices of the broker of depository participant," SEBI said.
SEBI's directive on Friday came after the Securities Appellate Tribunal asked the regulator to look into the issue of clarification sought by Karvy Stock Broking with regard to usage of PoA given by clients. It asked SEBI to pass an appropriate order after giving an opportunity of hearing by December 2, 2019.
SEBI, through an order passed on November 22, had barred Karvy from taking new clients in respect of its stock broking activities and also prevented it from using the PoA given by clients after the broker was found to have allegedly misused clients' securities.
The order was a result of a preliminary report forwarded by National Stock Exchange on the non-compliances observed with respect to pledging/misuse of client securities by Karvy.
Pursuant to the SEBI order, the brokerage filed a plea with SAT, seeking certain clarifications with regard to restrictions imposed by the regulator as they were creating a problem in settling trades of its clients with the clearing house.
SEBI in its latest order said "forensic audit of the KSBL, initiated by the NSE, is in progress and the full magnitude of the mis-utilisation of the clients' securities will be known after completion of the forensic audit."
It further said "it would not be prudent to allow the use of PoA by KSBL (Karvy Stock Broking Ltd) given to it by its clients, as prayed by KSBL. Thus, the clients of KSBL who seek to sell securities through KSBL may do so by using electronic or physical DIS only."