safety on demat a/cs in question again

on feb 25, 2005, i had written:
"There is no great barrier to stop the stockbrokers who hold investor’s shares to transfer them to their own account. Many of broker-depository participants have closed down and some random cases of investor fraud have come to light especially in Kolkotta."
the full post is available here.

Now, the Business Standard reports that a fraud has come to light at Karvy, Kolkotta.
The manager of a branch transferred some shares from client a/cs to himself. there were warning signs earlier and now it has made it to the mainstream media.

"Incidentally, there were reports in a section of media that Karvy Stock Broking has allegedly siphoned off shares from the clients account for their own gain. It was also alleged that Karvy has not transferred the shares purchased by some clients to their respective depository accounts."

The complete article is available here.

If it can happen at Karvy, one of the better run broking houses, it is pretty nightmarish what can happen elsewhere. The demat system is structurally flawed i cant think what can be done to rectify it.

I believe the greatest risk to the Indian equity market does not come fronm global events like the London bombings but from the systemic risk in the demat procedures and entities like Sahara.