Your stockbroker has been declared as a defaulter!

Your stockbroker has been declared as a defaulter!

Last updated: 26 Nov, 2020 | 08:27 am

Your stockbroker has been declared as a defaulter!

The National Stock Exchange (NSE) has declared Karvy Stock Broking Ltd as a defaulter and scrapped its membership. Karvy failed to comply with NSE guidelines meant for stock brokers. Stockbrokers are required to adhere to the rules and not involve in any misconduct.

In November 2019, Karvy had transferred securities worth more than ₹2,300 crore in to its account by misusing power of attorney given by its clients. The company had indulged in malpractice of selling clients securities, and transferring proceeds to related party businesses, such as Karvy Realty Ltd.

How much has been returned to investors?

  • In December 2019, Over 83,000 clients, or more than 93% out of 90,000 clients of Karvy Stock Broking had received securities worth Rs 2,013.77 crore, which the broker had wrongly pledged with lenders. Most of the remaining accounts was in dispute with Karvy Stock Broking, so they may get their money/securities after clearing dues with Karvy.
  • On 17th November, NSE said that investors with fund balances up to ₹30,000 due from Karvy Stock Broking Limited have been settled.
  • According to the latest update, funds and securities worth ₹2,300 crore belonging to about 2.35 lakh investors of Karvy Stock Broking Ltd have been settled so far.

The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) had already suspended Karvy's trading license in December last year. Sebi had barred the firm from taking on new clients and limited its use of Power of Attorney for its existing clients. 

In case your amount is still stuck, do not panic. NSE had said that it is making all efforts to focused on the settlement of small investors.

How to safeguard your money from a karvy-like fraud in the future?

  • When you give the PoA (Power of Attorney) to your broker, it allows them to operate your demat account. While this may be a required practise in some cases, the broker has a route to misuse this facility. In case you wish to trade futures and options or participate in intraday equity trading, there is no requirement of the POA. But whenever you sell shares from your demat account or want to pledge them for getting margin for trading F&O, the POA is used to debit the shares from your demat account. This ensures that the entire process is online and less tedious.
  • By regulation, brokers need to necessarily call you before the execution of any trades on your behalf. These calls are recorded. You must also save the recording for your future reference.
  • Whenever you get the details of your stock holdings with the Depository Participant, verify if any stocks have been pledged without your knowledge. This can be another route to misuse your investments.
  • Do not keep any additional cash in your breakage account, as it could be misused. Transfer from your bank account as and when necessary. 
  • In case you wish to be even more diligent, you could choose to not grant PoA to your broker. You could use CDSL’s ‘easiest’ or NSDL’s ‘speede’. These are Internet-based facilities that permit clearing members of the beneficial owner (clients) to submit off-market, on-market, inter-depository and early pay-in debit instructions from their demat account. Now, your broker will not be able to debit your shares.