INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

KARVY STAYS DP, BUT CAN'T OPEN NEW ACCOUNTS

  IN A breather to Karvy Stock Broking in the alleged irregularities case in initial public offers, SEBI has allowed the Hyderabad-based company to continue with its depository businesses, while putting on hold the opening of new DP accounts. Sebi also said that interim directions against two brokerages — Jhaveri Securities and Magnum Equity Services — have been discontinued.

In an order passed late Friday, the market regulator said the embargo on Karvy opening new DP accounts will continue till the completion of the inquiry. “Karvy Stock Broking is directed not to act as a depository participant, pending enquiry and passing of final orders, except for acting on the instructions of existing beneficial owners....,” the order said. The new order puts to rest doubts about the future of the more than 7.5 lakh DP customers of Karvy. In its April 27 interim order delivered ex parte, Sebi had barred Karvy DP, Pratik DP and 12 other companies from capital market operations and also asked clients to shift their DP accounts from these entities.

“IT (the order) is a relief to us as it provides continuity to our group's operations,” chairman C Parthasarathy said. He declined to elaborate further. Sources in Karvy, however, said the company is likely to appeal against the order in the SAT. The order was issued after the market regulator alleged irregularities in know-your-client norms by these companies, which resulted in multiple accounts being opened during recent IPOs.

The proprietary brokerage service of Karvy, however, continues to be restricted. “KSBL (Karvy Stock Broker), as a stock broker, is directed not to undertake any proprietary trades in securities, either offmarket or on market, pending enquiry and passing of final orders,” the order said.

SEBI also directed that Karvy would not be allowed to continue with its registry business in new IPOs, while allowing it to work on existing registry businesses. Karvy, one of India's largest DP and registry companies, currently has over 25 IPO clients. However, the market regulator has allowed Karvy to continue with registry business in the case of new fund offers of mutual funds. The direction will not apply to Karvy Computershare as registrar and transfer agent to mutual funds, SEBI said.