Karvy got into ‘never allowed’ activities: Sebi

The Sebi Chairman Ajay Tyagi on Wednesday said the Karvy Stock Broking was indulging in activities that were 'never allowed'.

“Separation of accounts was in the June circular, which is now five months past. It cannot be anyone’s guess even if these instructions were not that explicit that they can use clients’ securities for doing something of their own,” Tyagi said on the sidelines of an OECD-Asian roundtable on corporate governance here.

The comments from Tyagi come days after the Securities and Exchange Board of India banned Karvy for selling client stocks pledged with it through associated entities.

Tyagi added that, in June, Sebi had made its stance “explicit” through a circular and hinted that there was no case for entities to indulge in such practices before that as well. “It cannot be anyone's case even if these instructions were not so explicit that they can use clients' securities for doing something (of) their own,” said added.

He mentioned proprietary trades or investments in other businesses while elaborating on the possible activities that a brokerage may carry out.
“This is a very basic thing which can't be allowed,” he reiterated.

Last Friday, Sebi barred Karvy from taking new clients for stock broking activities over alleged misuse of clients' securities.

The action followed leading bourse NSE forwarding a preliminary report to Sebi on the non-compliances observed with respect to the pledging/misuse of client securities by Karvy Stock Broking Ltd (KSBL).

The exchange's preliminary report is the result of the limited purpose inspection of KSBL conducted by it on August 19, covering a period from  January 1 onwards, Sebi had said in an order.

In a 12-page ex-parte interim order, Sebi Whole Time Member Ananta Barua said there was a “need for urgent regulatory intervention to prevent further misuse of clients' securities”.

Apart from prohibiting the entity from taking new clients in respect of its stock broking activities, the watchdog directed depositories NSDL and CDSL not to act upon any instruction given by KSBL in pursuance of power of attorney given by its clients.

“The depositories shall monitor the movement of securities into and from the DP (depository participant) account of clients of KSBL as DP to ensure that clients' operations are not affected,” the order said.