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Karvy fallout: Brokers to face stricter scrutiny of accounts

The Securities and Exchange Board of India has asked exchanges to detect Karvy-like cases beforehand.

By Pavan Burugula, ET Bureau |Updated: December 10, 2019, 04.12PM IST
MUMBAI: The Securities and Exchange Board of India (Sebi) has asked exchanges to focus on client fund utilisation and share pledging by brokers in forthcoming annual inspections, two people with knowledge of the development told ET. Brokerages have come under enhanced scrutiny after Karvy Stock Broking allegedly broke the rules by pledging client shares. Brokers can’t deploy the unused
and client securities to pledge and raise money. However, several Delhi-based brokerages defaulted on client obligations in 2017, prompting the regulatory tightening. Last year, Delhi-based Allied Securities used the shares of its institutional clients including Dalmia Cements as margins for proprietary trading. The brokerage eventually defaulted on its payment obligations and the issue is now pending before the Supreme Court.

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