Just to give a background to those who are not aware of it, here is the chain of events (feel free to point out errors)
- Karvy provides broking & demat services
- Karvy illegally transferred shares of its clients to its own demat account (or maybe the common pool account)
- Karvy then pledged these shares to borrow from banks/NBFCs
- Karvy, apparently, also sold some of these shares and transferred the proceeds to its related businesses
- Some clients noticed this misuse of shares and complained to SEBI
- SEBI found that about Rs 2800 crores worth of shares were misused to borrow some Rs 600 crores
- SEBI directed Karvy to stop its broking services and onboarding of new clients
- NSE/BSE suspended Karvy’s broking license
- NSDL, on its own, decided to transfer shares pledged by Karvy (but actually belonging to its clients) back to the clients’ demat accounts. So some clients were lucky enough to get back their shares!
Here is a press release about this:
Its about the PoA
Everything boils down to Karvy’s misuse of power of attorney (PoA), provided to it by its clients. Most broking houses make it mandatory (at least the onboarding executives say so) for new clients to provide a PoA. A PoA allows the broker to initiate debit requests to your demat account when you place sell requests. Apparently it can also be misused to pledge and/or transfer your shares to any other account, which is quite scary!
Today I received an email from NSDL with some advisory. It had these points (amond many other points):
• Be careful while executing the PoA (Power of Attorney) - specify all the rights that the stock broker can exercise and timeframe for which PoA is valid. It may be noted that PoA is not a mandatory requirement as per SEBI / Exchanges.
• Register for online applications viz Speed-e and Easiest provided by Depositories for online delivery of securities as an alternative to PoA.
- Is any one here experienced with going about using the above alternatives?
- How do we register for them and ask our broker to revoke the PoA?
- How do we limit the PoA to only allow debits for trades initiated by us?