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Monday, September 28, 2020

‘Sebi to come out with circular to prevent Karvy-like incidents’

The board of Securities and Exchange Board of India decided to allow live testing of new products, services and business models by market players on select customers.

By: ENS Economic Bureau | Mumbai | February 18, 2020 4:08:58 am
Sebi, Ajay Tyagi, Securities and Exchange Board of India, Karvy Broking Services, Karvy Broking Services news, Karvy Broking Services crisis, Karvy Broking Services fraud, Indian express Sebi Chairman Ajay Tyagi (centre), along with officials in Mumbai on Monday. (Express photo by Amit Chakravarty)

The Securities and Exchange Board of India (Sebi) on Monday said Karvy Broking Services Ltd (KSBL) has informed the stock exchange that it’s planning to sell stake in a subsidiary to meet the shortfall of Rs 678 crore in client payout obligations by March this year. Sebi Chairman Ajay Tyagi said the capital markets regulator will soon come out with a circular to prevent incidents like KSBL, which had allegedly misused clients’ securities.

“As on February 14, the total dues of Karvy is about Rs 1,189 crore. While banks have securities worth only Rs 511 crore, there is a shortfall of Rs 678 crore … NSE (National Stock Exchange) has issued notices to Karvy and the broking firm has told the exchange that it is in the process of selling a firm for which term sheet has been accepted and clear all its dues to clients and banks by March end,” the Sebi Chairman said, adding, “So we will wait and see.”

In November 2019, Sebi barred KSBL from taking new brokerage clients after it was found that the latter had allegedly misused clients’ securities to the tune of more than Rs 2,000 crore.

The Sebi board on Monday also approved norms for investment advisers and said that an individual adviser cannot provide distribution services, while firms would now need to segregate advisory and distribution activities at the client level.

The markets regulator also tightened its eligibility norms for investment advisers and decided to introduce an upper limit for their fees.

Apart from this, the Sebi board decided to allow live testing of new products, services and business models by market players on select customers.

To begin with, all Sebi-registered entities will be eligible to participate in such a ‘regulatory sandbox’ — a live testing environment where new products processes, services and business models can be deployed on a limited set of eligible customers for a specified period of time with certain relaxations in rules and guidelines, Sebi said.

Subsequently, Sebi said fintech startups and other entities that are not regulated by it may also be allowed, but no exemptions would be granted from the existing investor protection framework, KYC and anti-money laundering rules.

The regulator also decided to allow a cross domain approach for this regulatory sandbox, wherein a regulated entity will be permitted to test solutions even for those activities for which it is not registered.

Tyagi, whose tenure as Chairman ends on March 1, said Sebi is “actively looking” at recategorisation of mid-cap and small-cap stocks for mutual funds.

Speaking about his work at Sebi, he said it was a deep dive job rather than being on surface. “My team and I believed in wide consultation with stakeholders, we were transparent and did what we did cautiously. At the same time, we also ensured there was no regulatory capture of the regulator,” Tyagi said.

On extension of deadline for listed companies to split posts of chairman and managing director to April 2022, Tyagi said there were implementation issues. Only 50 per cent of top 500 companies had segregated these roles. Practicalities and implementation issues led to extending deadline, he said.

Tyagi added that the Sebi board has not taken any decision to transfer its surplus to the Centre.

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