Friday, April 28, 2006

SEBI Bars 24 Brokers

SEBI bars Indiabulls, Karvy and 22 others



In a move that could likely impact the ongoing bull run in the Indian equities market and also casts some doubt on the various planned initial public offers (IPO), capital market regulator, Securities and Exchange Board of India (Sebi) has barred key depository participants and leading banks from carrying out capital market operations.
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In an ex-parte order issued late Thursday evening, Sebi barred Karvy and Pratik from carrying out depository participant (DP) and any other stock market activities, including broking. Karvy is India’s leading DP. The market regulator also directed major banks such as HDFC Bank, Centurion Bank of Punjab, IDBI Bank, ING Vysya Bank, Infrastructure Leasing & Financial Services, Motilal Oswal Securities and others, not to open fresh demat accounts. Indiabulls Securities, a major stock broker, has also been barred from the securities market. Karvy Stockbroker has also been banned.

The order issued by Sebi whole-time member G Anantharaman, has barred 24 “key operators” not to buy, sell or deal in the securities market, including in IPOs, directly or indirectly, till further directions. “We don’t comment on our own orders. Others have that privilege,” Sebi chairman M Damodaran told ET.

In its April 9 edition, ET had mentioned that Sebi had found more operators involved in the IPO irregularities. The move may cause uncertainty for many investors, including retail and high net worth individuals, who have broking accounts with Karvy Stockbroking and Indiabulls, both of whom are major brokers.

However, retail investors will be allowed to transfer their DP accounts to other Sebi registered DPs, according to the portion of the Sebi order dealing with Karvy. It is possible that broking accounts may also be allowed to be transferred.

The order which came late in the evening, had an immediate impact on the fortunes of Indian companies in the overseas markets. NYSE-listed software major Infosys Technologies traded weakly on news of the Sebi crackdown.

The operators mentioned by Sebi, include Roopalben Nareshbhai Panchal, Sugandh Estates and Investments, but the prominent retail brokerage Indiabulls Securities and Karvy Stockbroker are the only two real big names among the brokerages.

Sebi has also directed NSDL and CDSL to ensure that the demat accounts which were used by these “key operators” are not used for manipulation of IPO allotment in the future.

Sebi has also barred about 84 entities, who financed the above mentioned key operators, from trading in the securities market and in IPOs. The financiers also include Karvy Stock Broking and prominent chartered accountant Dushyant Natwarlal Dalal.

oming down heavily on the DP activities of major banks, Sebi said that the banks have “grossly failed in adhering to the know-your-client norms and thereby facilitated opening of demat accounts in fictitious names and cornering the retail portion of IPO shares.”

The Sebi investigation was initiated after reports of irregularities surfaced in the IPOs of Yes Bank and IDFC. There were complaints on alleged manipulation in the allotment of shares in the two IPOs, where some investors allegedly opened large number of demat accounts — as many as 14,000 in some cases — to corner large number of shares of the company.

The order has been particularly harsh on the various arms of the Hyderabad-based Karvy. “Since the business groups of Karvy have appeared to have acted in concert in the gamut of the IPO manipulations, Karvy Stock Broking, Karvy Computershare, Karvy Investor Services and Karvy Consultants have been banned from taking on fresh business as registrar to issues and share transfer agents.

Source: Economic Times Website

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