In the aftermath of Karvy Stock Broking episode, capital market watchdog Sebi on Wednesday said the brokerage was indulging in activities which were "never allowed".
The comments from the regulator's chairman Ajay Tyagi come days after Securities and Exchange Board of India (Sebi) banned Karvy, with immediate effect, for selling client stocks pledged with it through associated entities.
Tyagi added that, in June, Sebi had made its stance explicit through a circular and hinted that there was no case for entities to indulge in such practices before that as well.
"What is basically never allowed was being done. It is not that this separation was asked in June," he told reporters on the sidelines of the Organisation for Economic Co-operation and Development (OECD)-Asian roundtable on corporate governance here.
"It cannot be anyone's case even if these instructions were not so explicit that they can use clients' securities for doing something (of) their own," he added.
He mentioned proprietary trades or investments in other businesses while elaborating on the possible activities that a brokerage may carry out.
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"This is a very basic thing which can't be allowed," he reiterated.
Last Friday, Sebi barred Karvy from taking new clients with respect to stock broking activities for alleged misuse of clients' securities.
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 Karvy Stock Broking (KSBL).
The exchange's preliminary report is the result of the limited purpose inspection of KSBL conducted by it on 19 August, covering a period from 1 January 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 stock broking activities, the watchdog directed NSDL and CDSL not to 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.