Regulator Sebi on Friday Karvy Stock Broking Ltd (KSBL) from taking new clients with respect to stock broking activities for alleged misuse of clients' securities.
On Friday, NSE forwarded 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 said in an order.
In a 12-page ex-parte interim order, Sebi Whole Time Member Ananta Barua said there is 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.
Further, the regulator said the depositories and stock exchanges shall initiate appropriate disciplinary regulatory proceedings against KSBL for misuse of clients' funds and securities as per their respective regulations.
The findings recorded in the order are based on the prima facie examination of facts and prima facie violation of securities law, it added.
Sebi also said the "order does not ipso facto entitle any client of the noticee (KSBL) to claim their funds, stocks and securities, which claims are to be taken by such clients with the concerned stock exchanges/ depositories in accordance with their respective bye-laws".
The directions would be in place pending forensic audit.
KSBL has been given 21 days time from the date of receiving the order to file its objections or responses, if any.