The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have been fined by the Securities and Exchange Board of India (SEBI) for alleged "laxity" in detecting Karvy Stock Broking Ltd's exploitation of customer securities.
On Tuesday night, the markets regulator fined the BSE Rs 3 crore and the NSE Rs 2 crore. SEBI said, the Hyderabad-based brokerage improperly pledged securities worth Rs 2,300 crore on behalf of over 95,000 clients by moving them to a single Demat account. Karvy and its group companies used funds from eight banks to raise Rs 851 crore.
The markets regulator stated the exchanges were sloppy in early detection of the brokerage firm's manipulation of clients' securities in two separate orders against the BSE and NSE. The exchanges took a "casual attitude" to scrutinising Karvy in past years, SEBI said.
"Without a doubt, it was KSBL that misappropriated clients' securities by unauthorisedly pledging them, and was thus responsible for loss caused by pledging securities it did not own, including loss to investors as well as loss to banks and NBFCs who loaned funds to KSBL against securities that did not belong to KSBL," the regulator stated.