Karvy case | SEBI examines role of exchanges, 12 brokerages: Report

The Securities and Exchange Board of India (SEBI) has widened its investigation into Karvy Stock Broking to include exchanges and a dozen brokerages, Mint reports.

SEBI on November 22 banned Karvy from taking on new clients as it suspected unauthorised use of clients' shares estimated at Rs 2,000 crore. This could possibly be one of the largest defauts ever by a broking firm in India.

The market regulator is trying to understand why exchanges failed to notice lapses at Karvy, sources told the paper. SEBI is also trying to find out how exchanges failed to detect the illegal pledging of clients' shares by Karvy despite periodically auditing broking firms.

Also read: Karvy case | Lenders may approach SAT to access shares pledged by co

SEBI is also examining whether other brokerages follow similar practices, the report said.

Moneycontrol could not independently verify the story.

"Exchanges are required to conduct regular annual inspection of brokers, but in Karvy's case, they failed to detect instances of misuse of client money done by the broking firm at an earlier stage," a source told Mint.

The first tranche of payouts to clients by the brokerage will be done in two weeks, a Karvy spokesperson told the paper.

SEBI first became aware of the alleged misuse of clients funds by Karvy in mid-October.

After the ban, Karvy has been issuing physical delivery slips to ensure that trading continues as usual for existing clients, Business Standard reports.