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Rajesh Abraham

Mumbai , Dec. 16

THE National Securities Depository Ltd (NSDL) on Friday said its detailed inspection of the records of Karvy Stockbroking Ltd (Karvy-DP) would help in ascertaining whether the practice of opening multiple dematerialised accounts to misuse retail investors' allotment portion during IPOs was rampant in the system.

"Let us first inspect Karvy-DP. We will be looking whether the `know your client' norms were followed by Karvy-DP," Mr C.B. Bhave, Managing Director, NSDL told Business Line.

Market regulator SEBI, in its interim order on Thursday, asked NSDL to undertake a comprehensive inspection of Karvy-DP, particularly focusing on the systems and procedures put in place by the company for implementing the KYC norms that DPs are required to follow.

A SEBI probe found investors "abusing" the retail allotment process in the YES Bank's IPO in June this year by opening over 7,500 fictitious dematerialised accounts and applying in small lots to corner large-scale allotments in the IPO. SEBI suspects manipulations (opening multiple accounts to apply for IPOs) in various IPOs that have hit the market recently.

Mr Bhave said the inspection would help NSDL in knowing if similar practices were rampant in the system, especially to apply for the IPOs. He, however, refused to set a time-frame on submitting the report of its findings to the SEBI, saying NSDL was not in a position to know the amount of papers and documents it have to inspect at Karvy-DP.

SEBI had asked NSDL to complete the investigation in a "time-bound" manner.

The SEBI order had said that "NSDL shall identify the deficiencies in Karvy-DP with regard to the KYC norms and also ascertain from Karvy-DP the particulars of other potential benami accounts more particularly those multiple accounts having the same contact address or having the same person or entity authorised to operate these demateralised accounts."

Asked whether the existing system was foolproof, Mr Bhave said NSDL would come to know about it only after the inspection of Karvy-DP.

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