Addressing the Karvy Stock Broking (KSBL) episode, Securities and Exchange Board of India (SEBI) Chairman Ajay Tyagi said the now-banned stockbroker was indulging in activities that were 'never allowed'.
Speaking on the sidelines of the Organisation for Economic Co-operation and Development (OECD)-Asian roundtable on corporate governance, Tyagi stated: "Separation of accounts was in the June circular, which is now five months past. It cannot be anyone’s guess even if these instructions were not that explicit that they can use clients’ securities for doing something of their own."
KSBL was banned from taking new clients with respect to stockbroking activities with immediate effect on November 22, for alleged misuse of clients' securities.
"This is a very basic thing which can’t be allowed," Tyagi said, mentioning proprietary trades or investments in other businesses while elaborating on the possible activities that a brokerage may carry out.
The action followed leading bourse NSE forwarding a preliminary report to SEBI on the non-compliances observed with respect to the pledging/misuse of client securities by KSBL.
The exchange's preliminary report is the result of the limited purpose inspection of KSBL conducted by it on August 19, covering a period from January 1 onwards, SEBI had said in an order.
In a 12-page ex-parte interim order, SEBI Whole Time Member Ananta Barua said there was a "need for urgent regulatory intervention to prevent further misuse of clients' securities."
Apart from prohibiting the entity from taking new clients in respect of its stockbroking activities, the watchdog directed NSDL and CDSL not to act upon any instruction given by KSBL in pursuance of power of attorney given by its clients.
"The depositories shall monitor the movement of securities into and from the DP account of clients of KSBL as DP to ensure that clients' operations are not affected," the order said.
(With inputs from PTI)
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