Barred, but Karvy uses delivery instruction slips to keep trades going

KarvyStock Broking Limited (KSBL), which has been barred from taking on new clients and executing trades for allegedly misusing client securities, is using physical delivery instruction slips to continue “full support and services as usual” to its clients according to a note from division of the brokerage.
The Securities and Exchange Board of India (Sebi) on November 22 barred the broker from using clients’ power of attorney after it found clients' shares being diverted to raise funds. It ordered the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) to not let KSBL use their clients power of attorney to transfer securities.

Karvy Private Wealth, a unit of the brokerage, issued a note after Sebi’s ban to tell its clients that it will continue to provide trading services. Business Standard has a copy of the note.
"...Nothing in the order impinges or in any way impacts our ability to do business as usual. We will continue to provide investment and trading facilities and we want to reiterate that we remain unhindered in our ability to act in your best interest. We reiterate that we will continue to provide full support and services as usual," it said.
The brokerage, in response to a question from Business Standard, said the Sebi order only barred it from using power of attorney and it could still act on delivery instruction slips, which are signed by clients for trade. This is to ensure that client operations are not impacted by the order, according to a Karvy spokesperson.
“The Sebi order also states that ‘the depositories shall monitor the movement of securities into and from the DP (depository participant) accounts of the clients of KSBL as DP to ensure that the clients’ operations are not affected’. We have made representations to Sebi and we have also explained this to the National Stock Exchange,” said the response.
“We have been permitted to deliver securities directly from the client accounts to the pool account for onward transmission to the Clearing Corporation. These are being monitored on a live basis by the exchange and therefore, investors who have sold securities through KSBL are being allowed to deliver the securities as before, under the supervision of the depositories and exchange,” it added.
The company said that it has made a representation to the regulator on the matter.
“We have also represented to Sebi that there should be greater clarity on this matter and we believe that the present arrangement is out of such representation and discussions with the concerned authorities. Kindly note that the objective of the Sebi order was to ensure that client securities are not misused and that securities sold by clients are delivered and payments so received are paid. This is presently being done and there has not been any inconvenience to investors,” it said.
A senior broker said that physical delivery instruction slips are rarely used because of the paperwork involved. The use of online delivery instruction slips is also being explored to make the process easier, according to a Karvy official.