HYDERABAD: Beleaguered Karvy Stock Broking can’t catch a break these days. On Monday, the NSE, BSE, MCX and MSEI suspended Karvy’s trading terminals for non-compliance of regulatory provisions pushing the brokerage out of business. Given the catastrophic blow, Karvy filed a fresh appeal with SAT seeking immediate relief from the Sebi order and another one against bourses’ suspension of its license. Both appeals will be heard on Tuesday. It must be noted that Karvy’s similar plea was scorned and rejected by Sebi just last Friday.
Suspension of trading terminal implies Karvy’s brokerage income will be hit, which could affect the firm’s ability to honour debt obligations. As of November, its consolidated debt was in excess of `3,000 crore.
While exchanges said Karvy’s customers can square off existing trades and migrate demat accounts to other brokerages, Karvy reasoned customers were unable to liquidate securities. “Because of the Sebi order, customers cannot monetise securities,” an official told TNIE.
Besides preventing it from adding new customers, Sebi had on November 22 barred Karvy from exercising the Power of Attorney given by clients. The order was based on NSE’s preliminary finding of misuse of clients’ securities. While the NSE-appointed EY is conducting a forensic audit, initial probe hinted Karvy borrowed `600 crore pledging securities of 95,000 clients worth `2,300 crore. Of these, 82,599 clients got back their securities into the demat accounts. Meanwhile, Bajaj Finance has moved SAT claiming rights over the pledged securities saying Sebi was wrong in returning these to the accounts of Karvy’s clients.
Hurdles ahead for customers
Customers of Karvy Stock Broking may face a long, slow grind before they can monetise their holdings or even migrate to another brokerage. With exchanges suspending Karvy’s trading terminals, investors cannot buy new equities or derivatives though they can square off positions. Karvy officials said customers are unable to migrate demat accounts to other brokerages due to the Sebi order.
The upshot is that the National Securities Depository transferred securities worth over `2,000 crore belonging to approximately 83,000 clients. The remaining customers will get back securities after clearing dues, said NSDL. These were securities, which Karvy illegally transferred to its own demat account and pledged without any authorisation