Mumbai: Market regulator Sebi is planning to further tightening the rules to deal with brokers misusing the client funds. The move comes as a fallout of the recent fraud in Karvy Stock Broking.
The measures likely to be taken by Sebi include barring brokers from offering clearing and settlement services.
According to sources, regulator is looking at allowing only well-capitalised banks to offer services like clearing of trades, custody of client collateral and settlements.
The regulator feels that there is a systemic risk that needs to be addressed especially after the recent spike in incidents of broker defaults and misuse of client funds.
Last week, Sebi banned Karvy from taking on new clients following alleged misuse of client securities for trades that were not authorised by clients.
At an estimated `2,000 crore, it is one of the largest defaults by a stock broker in India.
In fact, Sebi had been considering introducing a revised structure a few years back.
As per the plan, the client money will continue to be kept with depositaries such as NSDL and CDSL or a custodian and can be transferred to a broker only under the direction of the clearing corporation.
Sebi, which has been getting many complaints of misuse of client money by brokers, now wants to put in place a structure like a banking system where client money can’t be misused. The system will be similar to foreign institutional investors (FIIs) trade, where client money and security are kept at different places.
In the case of Karvy Stock Broking which manages accounts of 2,44,000 clients, several investors complains came to Sebi on delayed payouts.
An annual inspection conducted by NSE also pointed to discrepancies in trading between April 1, 2016 and October 2019.
“Prima facie a net amount of Rs 1,096 crore has been transferred by KSBL (Karvy Stock Broking Ltd) to its group company i.e. Karvy Realty Pvt. Ltd between from 1 April 2016 to 19 October 2019,” said Sebi in the order citing the NSE inspection report.
