SEBI asks NSDL, CDSL & DPs to pay up Rs. 116 cr

In a first of its kind judgment that should hold promise of a level playing field for small investors in the capital market, the Securities and Exchange Board of India on Tuesday directed the major depositories- NSDL, CDSL and eight other depository participants like Karvy, HDFC Bank, ING Vysya and IDBI Bank to pay up around Rs. 116 crore as compensation to retail investor who suffered an opportunity loss in the initial public offering share allotment scam that came to light last year.

This was the first decision of its kind in order to curb scams like IPO scam. The IPO scam which came into light last year was depriving the retail investors to participate in the IPO. The retail investor suffered from opportunity loss. According to SEBI, the Depository Participants and depositories are also responsible for all this scam. This is the reason behind the fine charged to them. Karvy was the main culprit in this entire event. When this issue aroused Karvy was banned for few days. Now also Karvy has been charged Rs. 51 crore.

In IPO scam the depositories were applying for IPO’s with fake names and address to get more units of the shares. So the retail investors were getting fewer shares as the IPO was oversubscribed by many more times than the market expectations. Then they were selling those units to big corporate or FIIs. They were creating the shortage of share in the market. So on the first day of listing itself the stock price was in bull spree due to demand of that stock.

SEBI has taken many other steps which are going to reduce the chance of scams like this. Now the loan on shares has been kept at a limit of Rs. 10 lakhs. This limit is not for individual share but for the whole portfolio. This may affect the companies going for IPO. Now the oversubscription rate will reduced as the investor will have to find other source to fund their investment.