More brokerages may have used clients' funds
"Any such increase in costs could strain smaller brokerages financially," the source said.
New Delhi: After the recent Karvy demat account scam, over 30 broking houses are suspected to be indulging in unethical practice of utilising the margin money of customers.
The power of attorney (PoA) - that a customer gives to the broker during the opening of the demat account to execute trades on instructions given by the customer on phone - is being used for making unauthorised use of the margin money by the broker.
"There are as more as 30 brokers in the country which are indulged in the unethical practice of utilising the margin money that they are given by their investors out of trust, while giving power of attorney (PoA) to the brokers to do transactions on their behalf," said a top industry source.
"The reason being that PoA are in a standardised format, and hence it has become very difficult for an investor to know the nitty-gritty involved in the scam, if any," the source said, without divulging the details of such brokers.
After the aftermath of the Karvy scandal, it has been observed that broking houses fear escalation in compliance costs as the market regulator Securities and Exchange Board of India (Sebi) is set to further tighten the regulatory norms to save the investors. "Any such increase in costs could strain smaller brokerages financially," the source said.
The National Stock Exchange of India (NSE) too has cautioned that while executing the power of attorney, the customer should ask the broker to specify all the rights that he can exercise and timeframe for which PoA is valid.
"It may be noted that PoA is not a mandatory requirement as per Sebi/exchanges. Also, one should register for online applications viz Speed-e and Easiest provided by depositories for online delivery of securities as an alternative to power of attorney," the NSE warned.