Sebi is probing the role of stock exchanges and broking firms in the Karvy case, reported livemint, citing two people aware of the development.

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According to the report, the market regulator has expanded the probe to include around a dozen brokerage firms and stock exchanges to find out why they failed to spot the lapses and whether more entities are involved in such practices.

“Exchanges are required to conduct regular annual inspection of brokers, but in Karvy’s case, they failed to detect instances of misutilisation of client money done by the broking firm at an earlier stage…the exchanges are first-line regulators and should be cognizant of any misutilisation of client securities and should have flagged it," a regulatory official was quoted as saying in the report.

Last week, Sebi banned Karvy Stock Broking from taking new clients and executing trades for existing customers over defaults worth Rs 2,000 crore and allegedly misappropriating money to fund its real estate arm, Karvy Realty.

According to the regulator, Karvy violated norms, including transferring client shares to itself, and pledging client shares to raise money, which is diverted to its real estate arm.

In an exclusive interview with CNBC-TV18, Karvy Group Chairman C Parthasarathy said all the branches and customers of the firm were able to trade freely and there was absolutely no issue as far as the clients are concerned.

Clarifying on the reports of default, Parthasarathy said, “Delays (in pay-outs) have been small, there have been delays because the focus has been on analysing all these securities, the delays have been very small, it would be about Rs 20-30 crore as of now and we hope to clear this by the end of this week."

First Published:Nov 28, 2019 10:18 AM IST