Table of Contents
What is a stockbroker?
- A stockbroker is a middleman who has the authority to buy and sell stocks and securities in a stock exchange on the investor’s behalf.
- Stocks are traded through exchanges. However, an investor cannot directly trade in stock exchanges.
- To buy a stock or sell a stock through exchanges, you need an intermediary who will help you with the transaction.
- This middleman can be a person or a company who is authorised to buy and sell stocks and other securities on your behalf.
- Such a person or a company is known as a stockbroker.
- They are governed under the SEBI Act 1992, Securities Contract Regulations Act, 1956, and also the SEBI (Stockbrokers and sub-brokers Regulations), 1992.
What has happened?
- The National Stock Exchange Monday declared Karvy Stock Broking Limited (KSBL) as a defaulter for non-compliance with various regulatory provisions.
- It also also expelled it from the membership of the exchange.
- Exactly, a year ago on November 22, the Securities and Exchange Board of India (Sebi) had banned KSBL from taking fresh business for allegedly misappropriating
- money and securities belonging to its investors in
- order to fund its real estate arm, Karvy Realty.
What is the case of Karvy?
- The case pertains to Karvy unauthorisedly transferring securities of clients into one of its Demat accounts by misusing the PoAs (Power of Attorney) given by its clients.
- In November 2019, when the case came to light, Sebi moved against Karvy for violating norms,
- Including transferring client shares to itself and pledging client shares to raise money, which it diverted to its real estate arm.
- Many of Karvy’s over 2.40 lakh clients had complained to the regulator about money and securities not coming to their trading accounts.
- Securities lying in Depository Participant (DP) accounts belong to clients and can only be pledged to meet the obligations of the respective clients.
- KSBL had no legal right to create any pledge on those securities.
- In its report submitted to Sebi, the NSE had then said that KSBL misused the power of attorney given by its clients.
- To hide this, KSBL did not report the DP account
- (No. 11458979) in its submissions to the NSE from January to August 2019 and this was detected only during inspection, the NSE said.
How much money was involved?
- The Sebi order in 2019 said that a net amount of
- Rs 1,096 crore was transferred by Karvy
- Stock Broking to Karvy Realty.
- However, as per the latest figure released by NSE last week, the exchange had settled that funds and securities worth Rs 2,300 crore belonging to about 2.35 lakh investors of KSBL.
- Sebi started investigating similar diversions of funds from clients accounts by other broking houses.
What happens to the clients?
- As NSE has now expelled KSBL from the membership of the exchange and Sebi had banned the firm from taking fresh business, the exiting clients can’t trade through KSBL.
- Stock exchange officials say all the existing clients of KSBL would have either got their securities back and got it transferred to another brokerage firm,
- Or would have received the value of their securities into their bank accounts.
Q) Which of the following statements regarding Securities and Exchange Board of India (SEBI) is correct?
- SEBI was established in 1988 as a statutory body.
- Tenure of SEBI chairman is not fixed.
- 1 only
- 2 only
- Both 1 & 2
- None of the above
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