After defaults of nearly Rs 2,000 crore, the Securities and Exchange Board of India (Sebi) has cracked the whip on Karvy Stock Broking. The regulator has passed an interim order barring Karvy from taking new clients.
The Sebi order says Karvy transferred shares out of client accounts into its own accounts, and then it went ahead and pledged these shares. After pledging shares and raising money against client accounts, it used the money for its own operations.
The chairman of the Karvy Group told CNBC-TV18 that they have 21 days to reply to the Sebi order and they are in the process of preparing a comprehensive response.
A Sebi circular that came out in June had asked all brokers to stop the practice of raising money via pledging of client shares. It had asked brokers to wind down existing positions by September 30. Karvy was unable to do it.
The chairman said the size of the book had been brought down from Rs 1,100 crore in September to Rs 400-500 crore.