Financial Insights

SEBI imposes penalty on BSE and NSE for being careless in Karvy case

Securities Exchange Board of India (SEBI), India’s capital markets regulator, has imposed a hefty penalty on India’s major bourses- NSE & BSE, due to their laxity in the matter of Karvy Stock Broking Ltd (KSBL).

This matter relates to Karvy Stock Broking Ltd. which has misused its clients’ securities worth around Rs 2,300 crores, belonging to over 95,000 clients to pledge them from one demat account. The funds raised were used by KSBL and its group entities to raise Rs 851.43 crores from 8 NBFCs.

“Without doubt, it was KSBL which misused client’s securities by unauthorisedly pledging them, and was thus responsible for the loss caused by pledging securities which it did not own, including loss to investors as well as loss to banks and NBFCs who loaned funds to KSBL against securities which did not belong to KSBL,” as per the orders passed on Tuesday.

SEBI has noted that KSBL is a member of both BSE & NSE and was under the regulatory of the duo. Hence, the regulator came to the conclusion that it was carelessness on the part of the bourses whose laxity ended up delaying the detection of the misuse. Therefore, both NSE and BSE have been served a penalty of Rs 2 crores and Rs 3 crores respectively.

Highlight by Aman Agarwal.

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