Following the recent suspension of the broking business of Karvy Stock Broking, Vijay Chandok, MD & CEO, ICICI Securities, answers some questions on the issue.

Do you think SEBI’s order on Karvy indicates further loopholes in stock broking mechanisms that clients should be wary of?

SEBI has been a very proactive regulator and has drafted rules keeping in mind the interests of investors. Even the existing guidelines very clearly protect the interests of investors. However, media reports suggest that a specific broker overstepped his authority and acted in way that is not permitted under regulation and law. Pledging of clients’ securities was never permitted by SEBI, and the PoA was misused for a purpose it was never intended for.

In this backdrop, what should broking/ trading clients be watchful about?

Client who have given their funds or securities to a broker, must insist on periodic settlement. Clients should also review SMSs, email alerts received from the depository, stock exchange and bank account, to closely monitor and track the movement of their funds or securities, to check whether the same is in accordance with the transactions initiated by them.

ICICI Securities, through various plans, offers liquidity of up to Rs 1 crore a day within 30 minutes of trade, with the entire settlement proceeds being credited to the client’s account no later than T+2 days.

How are clients at your brokerage house protected from such risks?

At ICICI Securities, we have never pledged client securities in order to raise money or to take credit lines from banks. Client securities remain in their respective demat accounts at all times. Further, we settle client accounts on a bill-to-bill basis i.e. funds payout is done within 24 hours of payout by the exchanges. Hence, clients of ICICI Securities have full control over their funds and securities.

And, as mentioned above, through various plans, we offer liquidity of up to Rs 1 crore a day within 30 minutes of trade, with the entire settlement proceeds being credited to the client’s account no later than T+2 days.

What does the suspension of KSBL's licence by NSE & BSE mean to the clients now? Is there any recourse for them?

It is indeed unfortunate that customers have to straddle a situation where their broker’s licence has been revoked. In such a situation, investors can continue their trading activity by opening trading accounts with another broker and transferring their holdings to the new account. While selecting a broker, the investor should take into account his or her trust, goodwill and pedigree. Various brokers offer benefits for those who wish to transfer-in stocks, and customers could evaluate them and opt for the plan best suited to their investment needs and style.

Steps to transfer holdings to a new broker:

1) Fill the transfer-cum-closure form (available with your existing broker/ depository participant)

2) The customer needs to take the Client Master List (CML) of the recipient Demat Account to which shares are to be transferred and attach the same to the above closure form

3) CML should have the stamp of the Depository Participant

4) Both the documents need to be submitted to the Broker / Depository Participant from whose account shares would be transferred

Also, how does the RRM mode mentioned in BSE’s notice, affect existing clients of Karvy? Can they transfer their shares to another broker, if the shares are already delivered? What about those with pure MF transactions on their demat accounts?

Under the Risk Reduction Mode, the broker is allowed to place orders only to square off open positions. The broker is not allowed to place fresh orders, which would lead to creation of fresh positions. Hence, irrespective of RRM, the client may transfer his / her holdings, including MF holdings, to another broker/ Depository Participant.

Below is the case-by-case situation and action the client could take:

1) Holdings in client’s own demat account: Clients can freely transfer their holdings in their respective demat accounts to any other depository participant

2) Securities Holdings with the broker: In case the client holds unpaid securities or funded securities under the Margin Trading Facility, the same can be released after making payment of the outstanding amount to the broker

3) Securities as collateral with broker: In case a client has given securities as collateral to a broker, then the client may close his or her open position and demand release of collateral

4) Funds with broker: In case the client has funds with the broker, either in the form of pay-out proceeds or towards margin, then the client may ask for release of the same, after closing his or her open position (if any) in accordance with the Running Account Authorisation executed.

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