Karvy fiasco adds to woes of investors

New Delhi: There is a big crisis of confidence brewing in the stock broking space after the Sebi order banning Karvy Stock Broking firm from taking on new clients as this space has seen four major defaults in last one year.

With the stock markets growing and the participation of retail investors growing, defaults or controversies surrounding big broking houses does not augur well for investor confidence.

This is even more disturbing given that there are reams of regulation surrounding stock brokers and ethical market practices and even then default by the brokers suggests that the inspections and supervision by the regulator, Sebi and stock exchanges, NSE and BSE leaves a lot to be desired.

The Karvy defaults which is fiercely contesting the charges and the Sebi order on misuse of clients' money also has repercussions for the banks and lenders. An analysis of Karvy borrowings shows that ICICI Bank gave Rs 875 crore just one month back.

As per Sebi regulations, a broker cannot keep shares of a client for more than 24 hours after purchase in the pool account of the broker. Stiff Penalties are supposed to be imposed in such instances.

It is not clear how the matter was allowed to build up to such a scale when Sebi had to undertake immediate regulatory intervention by stopping new clients to be onboarded.

In four episodes in past one year, 4 big brokers have defaulted including Amrapali, Fairwealth, whose directors are also absconding, K-Net and now Karvy, although it claims that it will present its point of view to Sebi.

All this turmoil is raising questions on the surveillance and inspection by Sebi and stock exchanges where suddenly hundreds of crores of defaults are being detected by which time the damage is done.