BSE, NSE Penalised By SEBI Over Laxity In Karvy Stock Broking Case

SEBI penalizes BSE, NSE for laxity in Karvy Stock Broking case


New Delhi:

Capital markets regulator Securities and Exchange Board of India (SEBI) has asked the stock exchanges – Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for “laxity” on their part in detecting misappropriation of securities of clients worth Rs 2,300 crore. punished for. Karvy Stock Broking Limited (KSBL).

SEBI has imposed a penalty of Rs 3 crore on BSE and Rs 2 crore on NSE in two separate orders.


The case pertains to KSBL, which is misappropriating customer securities worth Rs 2,300 crore belonging to over 95,000 customers by pledging just one demat account. The funds raised against Pratigya were used by KSBL for itself and its group entities.

KSBL and its group entities used this money to raise Rs 851.43 crore from eight banks and non-banking financial companies (NBFCs).

“Undoubtedly, it was KSBL who misused the securities of the clients by pledging unauthorizedly, and thus was responsible for the loss on account of pledging the securities which it did not have, including loss to the investors as well as to the banks. and also included losses to NBFCs, who had lent money to KSBL against securities which did not belong to KSBL,” according to the orders passed on Tuesday.

SEBI noted that KSBL being a member of BSE and NSE was under regulatory surveillance of the exchanges. There was “laxity” on the part of the exchanges, which resulted in delay in detection of malpractice by KSBL and for this the exchanges should be held accountable.

Accordingly, the regulator has imposed penalty on exchanges for delay in detecting misuse of client securities by KSBL.

The order comes after SEBI along with NSE and BSE conducted joint inspection of KSBL from June 2019.

Subsequently, a forensic auditor was appointed by the NSE and a preliminary report was forwarded by it to SEBI in November 2019, based on which the regulator passed an interim order and then non-compliance with respect to pledge/misuse of the client. Confirmation order passed. Securities by KSBL.

In its 2019 order, SEBI had directed depositories to allow transfer of securities relating to a demat account to beneficial owners who had made full payment against securities under the supervision of NSE. The securities were returned to the customers following the orders of the market regulator.

In December 2019, National Securities Depository Limited had announced that securities were returned to 82,559 customers from KSBL demat account. In addition, NSE had said in November 2020 that funds and securities worth Rs 2,300 crore belonging to KSBL investors were settled.


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