BSE, NSE get Sebi notice on penalties

Mumbai: Markets regulator Sebi has sent demand notices to both the BSE and the NSE, asking the two bourses to immediately pay the penalties imposed on them by the regulator for their roles in Karvy Stock Broking’s demat-shares-for-loans scam. In the demand notice dated June 15, 2022, Sebi has also asked the BSE and the NSE to pay interest for the period the penalties were due.

A BSE spokesperson said the exchange is already contesting Sebi’s order at the Securities Appellate Tribunal (SAT), and would again approach SAT for a stay on the demand notice. Officially, NSE was yet to reply to TOI’s query till the time of going to press. But sources at the exchange said it had also moved SAT against the Sebi order and a hearing is scheduled next week. It would also move SAT against the demand notice.

On April 12 this year, Sebi had passed two orders — one against the NSE and another against the BSE, penalising the two bourses for a lax supervisory approach while inspecting Karvy Stock Broking’s books, in particular its usage of clients’ funds and securities. Unknown to most, Karvy Stock Broking was transferring its clients’ shares to its own demat account and pledging the same with banks to raise funds, which it had diverted to its other businesses. Such illegally raised loans against clients’ shares was worth about Rs 2,300 crore.

Finally in late 2019, on the basis of an audit report by the NSE, Sebi realised the extent of the fraud and immediately asked the broking house to stop all its operations. Since then, Sebi had passed orders against several entities for their roles in perpetuating the scam. It had also found the BSE and the NSE to be lax in their inspections of Karvy Stock Broking’s books, and hence the penalties imposed on these entities.