In a late night Friday order, a whole-time member of Sebi said considering the preliminary findings on the enormity of violations, it would not be prudent to allow Karvy the usage of PoA.
SAT on Friday had directed Sebi to decide on whether it can give any interim relief to Karvy by Monday that would enable it to settle client trades.
The matter pertains to a 22 November order by Sebi that had barred Karvy from using power of attorney after the broker allegedly transferred clients’ money for other purposes and indulged in trade not authorized by them. The misuse is so far estimated at ₹2000 crore. A power of attorney in trading is given by clients to a broking firm to trade on their behalf. This gives the broking firm control over the clients’ securities—to move them freely in and out of the clients’ or investors’ demat account.
Following these restrictions, Karvy made representations to Sebi to allow it to use the PoA as in its absence it was unable to settle trades of clients and suffered losses of ₹8 crore in the past one week. Subsequently it moved SAT on Thursday to request Sebi to act on its representation.
In its Friday order while refusing an interim relief, Sebi said in addition to misutilisation of client funds, Karvy continued to create additional pledges on client securities even after Sebi norms preventing brokerage firms from doing so kicked in from 1 October.
Karvy had another undisclosed demat account which it had used to transfer ₹2300 crore worth of 95000 clients' securities, this act was never authorised by investors, Sebi noted.
On the point of inability to clear trades in absence of a PoA, Sebi said clients can use 'Delivery Instruction Slip' or DIS and even electronic DIS.
Investors can use these slips to get delivery of securities in their demat accounts from pool accounts or depositories. Electronic DIS also removes the need for physical delivery slips. Some brokerage firms are already using the electronic DIS for transfer of securities to client demat accounts.