🔍
What if Zerodha, Upstox or Angel Broking go Bankrupt? – Karvy Case Study - YouTube
Channel: Asset Yogi
[1]
Friends, one question that comes to our mind is
[3]
If our stock broker flees or goes bankrupt.
[6]
Or he has done any default or by any reason, it gets closed
[10]
Then what will happen to our money? Or what will happen to our stocks?
[13]
This is a valid question.
[15]
We have seen back then in 2019, a stockbroker has done a default
[20]
whose name is Karvy
[21]
Approximately 2000 crore Rs were siphoned off
[24]
So the question that arises here is
What happened to the people's money or their stocks?
[28]
Do they get it back or not?
[30]
What type of protection does an investor get from the stock exchange or SEBI?
[36]
This type of big default had been done. Many frauds came to light.
[41]
What type of regulatory changes did SEBI make?
[43]
Or what type of regulatory changes did the stock exchange make?
[46]
We need to know this, with that
[49]
What precautions can we take to protect our stocks and money?
[53]
We are going to learn this in this video.
[55]
This video is going to be very important so stay tuned with the video.
[59]
To watch the latest finance videos, please subscribe to the channel
[62]
And press the bell icon and click on the all button
[65]
So that you will get the notification of the latest video
[67]
Friends if you want to learn about the stock market and investments
[69]
More clearly, then you can follow our playlist
[72]
For the stock market, there is master investor series, mutual funds series
[76]
Real estate series, there's a series for bonds.
[77]
You will find all these links in the description.
[80]
And you will also find more links related to the investments in the description.
[85]
So first we will try to know what happened in the case of Karvy?
[89]
In 2019, SEBI started getting many complaints
[94]
The money went missing from people's account
[96]
Or if they were buying shares then shares were not coming into their accounts.
[100]
Shares didn't come for at least 1 week
[102]
Generally, there is a T+2 cycle in India.
[105]
The shares should be there in your account on the third day
[107]
On the other hand,
[108]
If you've sold the shares
[110]
Then the money is not being deposit into your account
[112]
So on one side, complaints like this were coming
[114]
And on the other hand, some banks complained
[117]
That their loans were made default.
[119]
So when SEBI investigated this matter
[121]
They got to know that Karvy has raised loans from the market
[126]
By pledging many shares of their clients.
[128]
From HDFC Bank, ICICI Bank, Bajaj Finance
[131]
IndusInd Bank. These banks started complaining
[134]
So in November 2019, SEBI banned Karvy for taking any fresh business
[141]
This means that they cannot open any fresh Demat account
[144]
Then this matter was investigated more
[146]
And in November 2020, the National Stock Exchange and Bombay Stock Exchange
[150]
Expelled the Karvy Stockbroking. Their membership got canceled
[155]
After that, based on the complaint of IndusInd Bank
[158]
Promoter and Chairman of Karvy were arrested in August 2021
[162]
And with that, the other banks that were defaulted also get coated.
[166]
In September 2021, the CEO and the CFO were also get arrested.
[170]
So we understood the timeline.
[172]
So now we will try to understand how this whole scam happened?
[176]
What is its mechanics?
[177]
For this, we must know our money and securities when we buy stocks
[182]
How do they move? Assume I have sold the stocks. Then how will they move?
[186]
Stocks will be transferred to a pool account from my Demat account
[190]
which is seller's broker account, assume it's Karvy
[194]
They will go to its pool account
[195]
Then these stocks through the depository
[197]
Depository means in the case of Karvy it was NSDL
[200]
And the depository of the National Stock Exchange is NSDL
[203]
and the depository of Bombay Stock Exchange is CDSL
[207]
The securities are transferred from the seller's pool account through CDSL or NSDL
[213]
To the pool account of the buyer's broker
[216]
and then finally they are transferred to the Demat account
whoever the buyer has finally bought it.
[220]
In this cycle, we need T+2 days
[223]
This means the day on which we trade, shares come into the
[225]
account after two days of that day. Finally, the shares are in the buyer's account.
[228]
But you may have remembered that till 2019, most stockbrokers take the power of attorney.
[233]
If I talk about Zerodha, Upstox, Angel Broking, all the big brokers
[238]
Used to take the power of attorney and it is written on that power of attorney
[242]
That the broker can sell the stocks on behalf of you
[245]
The power of attorney is generally taken because
[247]
Assume you are doing intraday trade and you haven't sold the stocks on time.
[251]
So the broker sells them on your behalf and square off the position
[255]
Generally, this is the purpose of that.
[256]
But Karvy misused this power of attorney
[259]
Every stockbroker doesn't do this but Karvy misused it.
[263]
Karvy used the power of attorney from the Demat accounts of many clients
[268]
And transferred the securities to its pool account
[270]
And this information was not given to the clients
[273]
This information was not given to the exchanges also
[275]
In this way, many securities accumulated in the pool account of Karvy
[279]
So now when it has many securities
[281]
So based on that he went to take a loan from the banks
[284]
Bank thought that these securities belong to Karvy
[287]
So the bank provided the loan by pledging these securities and stocks.
[293]
Even though the banks should have done the due diligence properly
[295]
The regulations of SEBI say that banks should ensure whose securities are these?
[301]
Maybe the banks did not do the due diligence properly on their level.
[304]
So in this way, Karvy raised loans from many banks
[307]
And that money was diverted to another company called Karvy Realty
[313]
They diverted the funds of approx 1000 crore to Karvy Realty.
[316]
And the total amount of the scam was 2300 crore Rs
[321]
As we have talked about it that many complaints were coming
[324]
Some of them were from the bank
[326]
And some of them were from the clients
[328]
So SEBI had to take action here.
[330]
So obviously SEBI and stock exchanges took the action against Karvy
[334]
We already talked about it
[336]
But with that, it was important to protect the investors.
[339]
The securities in Karvy's pool
[342]
NSDL acted on this very fast at that time.
[345]
NSDL, the depository of the National Stock Exchange
[348]
All the securities in the pool account
[351]
Were transferred to the Demat accounts of the clients immediately
[357]
With that, the money stuck in the trading account
[360]
That money was also transferred to the trading account.
[362]
Other than this, the balance
[364]
Fund was transferred from the investor protection fund
[366]
So the maximum clients got their money
[369]
So this is the benefit of regulation
[372]
When the regulatory mechanism acts on time then it is very important
[376]
That people get their securities and money on time.
[379]
So this was the case with Karvy. But there is a very big question is that
[382]
How are we protected as an investor on today's date?
[385]
Many changes have been brought after this Karvy case.
[389]
The first question that arises here is that
how are our stocks or securities protected?
[395]
So first in this, we have to know that when
we trade through a broker or buy any security
[402]
Or stocks, they come into our Demat account. The broker don't own this Demat account.
[406]
The CDSL or NSDL have this Demat account which means the depository has it.
[412]
Broker is the depository participant
[414]
He is only helping us with the transactions
[417]
So our stocks are protected on a very big basis because of this
[420]
It is not dependent on the broker.
[422]
But other than this the power of attorney was misused.
For that many regulations were made.
[427]
For example, CDSL has made it mandatory whenever you sell the stock
[432]
You have to provide the T pin
[434]
This means you have to provide the transaction pin
[436]
And you can generate this T pin with your mobile.
[440]
So when you sell the security, you can only do so by providing the T pin.
[444]
Other than this whenever you do a transaction, you get alerts on SMS and emails.
[449]
Whatever you bought or sold the securities
[451]
So in this way our stocks and securities are protected
[454]
The second question that arises here is
[456]
How can we protect the money in our trading account?
[459]
In June 2021, more strict regulations have been brought by SEBI.
[464]
And according to this regulation if you haven't done a trade up to 30 days
[468]
So within three days, the broker has to transfer the money to your account
[476]
I will provide the link
[477]
Of this regulation in the description.
[478]
You can read it also.
[480]
The third mechanism in this is the investor protection fund.
[483]
Whenever you buy or sell the securities.
[486]
You pay an exchange turnover fee
[488]
The stock exchanges here have made their protection funds.
[493]
This means if the broker does the default or the agency has done the default.
[497]
And the assets that they have are not sufficient to pay off the investors
[503]
So here, the investor protection fund is used.
[506]
In the case of Karvy also, approx 81 crores were paid by the investor protection fund
[511]
You can also read about the investor protection fund in detail.
[514]
I will provide the link in the description.
[516]
Other than these mechanisms, if you face any discrepancy with the stockbroker.
[522]
First, write to that stockbroker
[524]
Write about the grievance in your email
[527]
You should have this in writing, you should have some kind of proof.
[531]
And after this too, if you don't get any response from them
[534]
Then there is a portal of SEBI,
-scores.gov.in
[536]
I will provide the link below. You can go and register your complaint there
[541]
It can be done online.
[542]
So these are the ways that we get from the government or SEBI
[546]
Or stock exchanges and our investor's interests are being protected.
[551]
Other than this, as an investor too, we can be careful.
[554]
The first thing is don't open your account with small brokers.
[558]
They push you to do more transactions
[562]
So when you do more transactions then they will get more brokerage
[566]
Maybe many people will still make you sign the power of attorney
[569]
They may take trades on your behalf
[571]
So these types of risks can be eliminated
[574]
When we go with some big stockbroker
[576]
So in India, if we talk about the top 3 or 4 brokers
[578]
Then there is Zerodha, Upstox, Angel One
[581]
You can open your account with these types of brokers
[583]
I will provide you with the free account opening links in the description.
[586]
So you can check them out.
[587]
Or if you are seeing this video in the future then whatever
[590]
will be the latest offer we will update you through description.
[592]
So I hope all your questions related to risks and stockbroker
[598]
Then they are answered after seeing the video.
[599]
If you find this video helpful then like and share this
video with your family members
[604]
I am sure their knowledge will be increased and they will gain confidence.
[607]
How can they open their accounts with the stockbrokers?
[610]
If you have any suggestions related to the video or channel
[613]
Then you can comment it below
[614]
And if you haven't subscribed to the channel yet then subscribe
[618]
And press the bell icon
[619]
To get the notification of my latest finance video.
[622]
So let's meet in the next informative video.
[624]
Till then keep learning, keep earning
[626]
And be happy as always
Most Recent Videos:
You can go back to the homepage right here: Homepage