Finance

Sebi looks to impose limits on brokers in the wake of Karvy fraud, says report

Updated : November 25, 2019 02:05 PM IST

Market regulator the Security and Exchange Board of India (Sebi) is exploring the prospects of barring brokers from offering clearing and settlement services.

The development comes after the regulator discovered that Karvy Stock Broking had illegally sold client stocks pledged to it for loans.

Sebi looks to impose limits on brokers in the wake of Karvy fraud, says report

Market regulator the Security and Exchange Board of India (Sebi) is exploring the prospects of barring brokers from offering clearing and settlement services, reported Livemint. The development comes after the regulator discovered that Karvy Stock Broking had illegally sold client stocks pledged to it for loans.

“We have been getting lots of complaints regarding defaults by brokers in payouts to clients. We are working on improving systems and processes with regard to the handling of client money by brokers," a Sebi official was quoted as saying in the report. The regulator is considering the shifting of the custody of client collateral, settlement and clearing of trades to well-capitalized bank custodians, the report further quoted a person familiar with the matter as saying.

The development comes days after the regulator banned Karvy from taking on new clients and executing trades over allegations of misusing client securities. The defaults are to the tune of Rs 2,000 crore and in an ex-parte order, Sebi has directed that pending forensic audit, Karvy is prohibited from taking new clients with respect to its stockbroking activities.

The market regulator's likely move has been met with positive response from various corners. An unnamed analyst who to Livemint said that "it is important for the regulator to put in place a foolproof system that would send an alert on a real-time basis if a broker were to indulge in such shenanigans."

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