Sebi Penalises BSE and NSE for ‘Laxity’ in Detecting Fund Misuse

Capital markets regulator Securities and Exchange Board of India (Sebi) has penalized stock exchanges BSE and NSE for “laxity” on their part in detecting misuse of clients’ securities worth ₹2,300 core by Karvy Stock Broking (KSBL). In two separate orders, Sebi has imposed a fine of ₹3 core on BSE and ₹2 core on NSE. The matter relates to KSBL misusing client securities worth ₹2,300 crore, belonging to more than 95, 00 clients, by pledging them from just one demit account, the funds raised against the pledge were used by KSBL for itself and its group entities. KSBL and its group entities. KSBL and its group entities utilized this money for raising ₹851.43 crore from eight bank/NBFCs. “Without doubt, it was KSBL which misused clients’ securities by unauthorized pledging them, and was thus responsible for 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 noted that KSBL being member of BSE and NSE was under regulatory supervision of the exchanges. There was “laxity” on the part of exchanges which resulted in delayed detection of the misconduct by KSBL and the bourses need to be held accountable for the same. Accordingly, the regulator has levied fines on the exchanges for the deli in detection of misuse of client securities by KSBL. The orders come after Sebi along with NSE and BSE conducted a joint inspection of KSBL from June 2019. Subsequently, a forensic auditor was appointed by NSE and preliminary report was forwards by it to Sebi in November 2019, based on which the regulator passed an interim order and then confirmatory order on the non-compliances observed with respect to the misuse of client securities by KSBL. S-ET

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *