(This story originally appeared in 
on Nov 26, 2019)
on Nov 26, 2019)
Sebi’s late Friday order against Karvy Stock Broking (KSBL) is a result of a nearly year-long investigation by the markets regulator. The probe was launched after investor complaints about brokers misusing clients’ stocks and funds. Starting December 2018, Sebi had been changing rules and ordering new reports from stakeholders in the market, which was making it increasingly difficult for brokers to use clients’ stocks and securities for their own use, sources said.
“All these steps (by the regulator and the exchanges) are aimed at investor protection,” a top exchange official said. The way the investigation is progressing, sources said, more names are set to tumble out in the open and some well-known broking houses could face a similar heat like KSBL is facing now.In December last year, Sebi first standardised books and records maintained by brokers so that inspection and comparison of data could become easier. The move came after investor complaints that some brokers were not transferring shares and money to the designated demat and bank accounts of investors. Then, in January 2019, Sebi directed all brokers to report day-wise stock and fund balance with them, segregated according to their clients. This was to be reported at the end of every week.
Between March and April, Sebi also started matching records of ownership of stocks that’s with the exchanges, with the brokers and that with the two depositories NSDL and CDSL. Around the same time, the regulator also started tallying details of pledged shares with depository records and what the brokers disclosed.
Then in a June 20 order, Sebi stopped all brokers from raising funds by pledging clients’ shares, and also ordered segregation and reporting of clients stocks and funds from those owned by the broker. This was one of the main moves that many market players said would, over time, expose those brokers who were having a field day by using clients’ stocks for their own use.All the brokers were asked to report compliance with Sebi’s June 20 order about segregation rules by August 31. However, after requests from brokers, the date was extended to September 3
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