Karvy Group names Amitabh Chaturvedi as new head of financial services arm

India's KarvyGroup said on Tuesday it has appointed a new head of its financial services unit as part of corporate restructuring, a month after the country's market regulator slapped a ban on its stock broking arm for alleged misuse of client funds.
Karvy named Amitabh Chaturvedi as group chief executive officer of its financial services arm with a mandate to "completely overhaul the governance processes, ensure best practices and to bring in greater fiduciary discipline to these businesses," the Hyderabad-headquartered firm said in a statement.

The Securities and Exchange Board of India (SEBI) barred Karvy Stock Broking last month after a preliminary investigation by the National Stock Exchange showed the brokerage pledged and sold some of its client securities to raise funds for its own use, without client authorisation and in violation of new rules.
Karvy had then said that there was no "mis-utilisation" of client securities.
Karvy Group is in the process of restructuring its overall business into financial services and non-financial services verticals, it said on Tuesday.
The restructuring will see its stock broking, wealth management, commodities trading and investment banking businesses come under the ambit of financial services, while non-financial services will comprise of data management services, data analytics, market research and allied businesses.

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.

Karvy denies misuse of client funds, says only Rs 50 cr dues pending

Karvy Stock Broking (KSBL) owes less than Rs 40 crore to its clients which will be repaid over the due course, said a top official. The brokerage refuted claims that it has defaulted to the tune of Rs 2,000 crore.
"Don't know where the Rs 2,000 crore figure has come from. I would like to say all the securities are intact. All these will be credited back to the regular accounts. So investors don't have to worry as to what will happen to their securities. There is no default in this particular case. The Sebi order says that the securities have not been dealt with properly. The have been utilised for other purposes," said a top official with the brokerage.

The official didn't want to come on order as the matter is sub judice.
On Friday, the Securities and Exchange Board of India (Sebi) passed an ex-parte interim order against KSBL barring it from taking new clients for misuse of client funds.
The official said some of the client shares were used for proprietary trading.
"What we do is, we sell on one exchange and buy it on other exchange. Basically it is arbitrage. These are the things, which have not been properly understood. Which we will explain the regulator soon. The number looks large as it is over a period of time. On a daily basis, it is a very small order,” the official said adding that “Some Rs 40-50 crore of client money needs to be paid, which will be done in normal course.”
The official said their clients are starting to worry after the Sebi order and the company is reaching out to them to explain the ground reality.
"We are communicating to everyone that everything will be fine. As we clarify on all the aspects, we will be able to regain trusts and things will be normal soon," the official said.
Besides the Sebi rap, KSBL also suffered a rating downgrade by ICRA.
The official said the downgrade had nothing to do with misuse of client funds.
“It is not linked to this. Please note it is just a downgrade and not a default. The rating is for Karvy stock Broking and its subsidiary companies. For the subsidiary companies the parent has to give a guarantee. But we are prohibited from giving a guarantee as it becomes a structured obligation under a new rule for brokers. Therefore, we haven't given any guarantee.”
Industry players said several brokers are feeling the heat of Sebi's move to bar them from using client funds — a practice that was fairly rampant in the broking industry.
In June, Sebi cracked the whip on such practice directing all the brokers to wound up all such accounts. It directed all the players to unpledge and return clients funds. Many brokers missed the August-31 deadline set by Sebi and also the extended deadline of September 30.