The Securities Appellate Tribunal (SAT) on Tuesday asked Karvy Stock Broking Ltd to approach the National Stock Exchange of India’s disciplinary committee to seek revocation of the trading suspension order.
After hearing Karvy’s representation, the NSE’s disciplinary committee will pass the final order by Friday on the status of the suspension order.
Karvy had moved SAT on Monday after all exchanges, starting with the NSE, suspended its trading licence across equity, cash, commodities and currency segments.
The suspension order by the NSE was followed by BSE Ltd and Multi Commodity Exchange (MCX). The exchanges had suspended the brokerage firm’s trading licence after its disciplinary committee found that Karvy violated exchange rules, as well as those of the market regulator.
Karvy has allegedly been merging its own securities with those of its clients, and used client securities for funding purposes, the exchanges found following a probe.
The move by the exchanges has stalled Karvy’s operations. It faces multiple restrictions, including a ban on adding clients, while it cannot use its power of attorney for existing clients. The broker can only square off existing clients’ open derivatives positions.
In its plea before the SAT, Karvy had said that the move by the NSE marks the economic death of the firm, and the suspension was based only on preliminary findings.
The NSE, in its preliminary report submitted to the regulator on 22 November, had said that the firm had missed client securities, in some case sold them off and transferred the proceeds to its related parties. The Securities and Exchange Board of India, or Sebi, on the same day passed an interim order preventing the brokerage from adding new clients and restricted it from using its power of attorney.
Karvy moved a separate petition against Sebi saying that the lack of PoA is making it difficult for the firm to honour client payouts. It said that Sebi has not considered inconveniences faced by existing clients and the monetary losses and penalties investors will incur.
Sebi had in fact asked Karvy to effect payouts using ‘Electronic-Delivery Instruction Slips’. Karvy’s petition against the Sebi order will be heard on 13 December.
Several investors registered with Karvy have also written to Sebi saying that the brokerage was not returning cash and they were unable to transfer shares from Karvy demat account to other brokerages.
“Sebi has referred all these complaints to NSE and NSE has sought replies from Karvy by 5 December," said a person, requesting anonymity.