SEBI new system to detect misuse

                              Securities and Exchange Board of India on Thursday 13.02.2019 introduce a new system to monitor and detect misuse of client securities by stock brokers. Under the new system an online register will record all the details regarding the clients securities holded by brokers. This system will joint all the information of clients securities collected by exchanges, depositories and clearing corporations. The actual securities holded by broker is matched with the system, if any mismatch in the data is flagged as an alert for exchange.

  

                                  The new system is introduced due to the issue with Karvy Stock Broking Ltd. On 22 November, SEBI  barred Karvy from acquiring new clients and using power of attorney, thereby preventing the company from trading on behalf of clients, after the broker allegedly used client money for other purposes. Karvy had, instead of pledging its own shares, pledged shares belonging to clients and utilised them to raise funds. Some of these funds were in turn transferred to its sister concerns such as Karvy Realty Ltd. On 1 December, the National Stock Exchange of India Ltd (NSE), BSE Ltd, Multi Commodity Exchange (MCX) and MSEI suspended the trading licence of the brokerage firm. The markets regulator has estimated the misuse of client securities by the broker at ₹2,800 crore.

                                SEBI has developed in-house capabilities to track online the movement of client securities collected by the broker as collateral, and raise alerts with exchanges if diversion of clients’ securities is noticed, the market regulator added.