InvestorQ : Why has SEBI banned Karvy from carrying on the stock broking business? What happens to the broking and demat clients of Karvy?
Aashna Tripathi made post

Why has SEBI banned Karvy from carrying on the stock broking business? What happens to the broking and demat clients of Karvy?

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Tisha Malhotra answered.
2 years ago
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SEBI last week passed ex-parte ad interim order against Karvy asking them to stock on-boarding fresh clients at Karvy Stock Broking and also not to execute any demat requests by Karvy where Power of Attorney has been given. There has been a crisis brewing at Karvy over the last few months and it all began with some of their losses making huge losses on castors futures position in the commodity market. That got transmitted to the equity market leading to a payment crisis at the broker.

However, SEBI has based their order on the report given by NSE. As per the NSE report, Karvy had transferred shares worth Rs.1096 crore from demat accounts where they had a power of attorney of clients and transferred the shares into the trading account of Karvy Realty Ltd. and have used the pledge of shares to raise funding. That is obviously not permitted. In addition, Karvy has also sold shares that did not exist in client accounts. SEBI has been worried that the broking house could trigger a major Rs.2000 crore crisis in the stock exchange and that is why they have put a ban on fresh business. While trading is still permitted, the ban on any demat debits virtually makes it impossible for KSBL to execute any orders on behalf of clients. Karvy has 21 days time to file a response.
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