SEBI had put restriction on Karvy to use Power of Attorney. This was making difficult for Karvy to process settlement of shares.
So, Karvy moved to SAT (securities appellate tribunal). SAT asked SEBI whether relief could be given to Karvy.
An investigation by NSE found that Karvy stock broking had taken a loan of around ₹600 crore by pledging securities of more than ₹2300 crore. On an average, 95000 investors are involved in this.
Karvy had sold their client ‘s stock pledged through associated entities and diverted the funds.
As a result of this, Karvy has been banned from taking new clients and execute Trading in :
- Capital market
- Futures and options
- Currency derivative
- Mutual fund
- Commodity derivative segment
NSE and BSE both suspended karvy’s license.
BSE put Karvy on RRM i.e.Risk Reduction Mode in equity, commodity & derivative segment.
Brokers put on RRM when 90% of their limit is utilised towards margins.
When a broking firm i.e. Clearing or trading member is put on RRM then :
- All unexecuted orders shall be cancelled.
- Fresh order placed by member will be checked for sufficiency of margin.
- If fresh orders are placed to reduce open positions, it will be accepted.
- Members can not approve or reject or modify trade done by investors.
- Members are allowed to trade in normal mode when utilisation goes below 90%.
Investors can transfer to another broker and are advised not to act on the advice given by Karvy with respect to power of attorney matters.
Also, investors are not supposed to allow transfer of stock with depository participant ‘s account named “Karvy Stock Broking Ltd” for now.