After Karvy Stock Broking Limited was caught misusing its clients’ securities to raise loans without their consent and SEBI banned it from signing on new clients, Karvy reportedly plans to sell off one of its companies to raise the funds to pay settle dues. This has been disclosed by Ajay Tyagi, the Chairman of Securities and Exchange Board of India (SEBI) in a media interaction.
Karvy still has to pay an amount of Rs 678 crore to banks and investors. There is a forensic audit of the broking firm ordered by NSE and the report is awaited.
Karvy has promised that this will be done before the end of March 2020. The National Stock Exchange has received a communication from Karvy to this effect says Tyagi.
The financial numbers in the case of Karvy are as follows. The company’s total outstanding dues is Rs 1,189 crore. This amount is split into Rs 694 crore in the form of securities and the balance ₹495 crore in the form of cash. But what is available in the kitty is only Rs 511 crore, leaving it with a shortfall of Rs 678 crore. This is the amount the company is now trying to raise through selling off one of its businesses.
In the aftermath of Karvy, SEBI has introduced a new system, wherein there will be an online register maintained of all securities held by the broking firms on behalf of their clients. This will cover all sources, like exchanges, depositories etc. and cover all trades like auction etc. An alert will go out when these securities are pledged for any purpose. This is system is already functioning and a few alerts have been raised too it is reported. SEBI has redefined the norms in pledging saying re-pledging of securities to meet margin requirements too will fall under the definition of pledge.
All these are being done by SEBI to prevent misuse by the stock broking firms and to protect the investors.