Beginning of end for Karvy Stock Broking started in 2018

HYDERABAD: The Karvy demat

scam

may have come to light only on November 22, 2019, after markets regulator

Sebi

issued orders banning Karvy Stock Broking (KSBL) from taking new

clients

, but the beginning of the end for the firm began much before that.

After numerous investor complaints about brokers not transferring shares and money to designated demat and

bank

accounts, Sebi began changing the rules and ordering new reports from stakeholders in the market, making it increasingly difficult for brokers to use clients’ stocks and

securities

for their own use.

In December 2018, Sebi started standardisation of books and records maintained by brokers to make it easier to inspect and compare data and in January 2019, it directed brokers to report day-wise stock and fund balance, segregated according to their clients, at end of every week.

Then, between March and April, Sebi also started matching records of ownership of stocks with the exchanges, with the brokers and that with the two depositories NSDL and CSDL and also started tallying details of pledged shares with depository records and what the brokers disclosed.

Then in a June 20 order, it stopped all brokers from raising funds by pledging clients’ shares and also ordered segregation and reporting of clients’ stocks and funds from those owned by the broker. This move exposed brokers like KSBL who were using clients’ stocks for their own use.

In September 2019, Sebi also ordered that shares could be pledged only after confirmation by clearing members or clearing corporations. Apart from pledging clients’ shares to raise funds, Karvy Group had also mortgaged its new corporate office in Hyderabad’s IT hub and its registered office in Banjara Hills to raise funds. It also mortgaged 10 immovable properties belonging to Karvy group CMD

C Parthasarathy

in Telangana and Karnataka to ICICI Bank.