At the Securities Appellate Tribunal (SAT), IIFL Securities is presently appealing a Securities and Exchange Board of India (SEBI) order from June 19 that prohibited the company from accepting new clients for its stock broking services for a period of two years.

According to the corporation, the order relates to inspections conducted between April 2011 and January 2017, which was before the release of SEBI's Enhanced Supervision Circular, dated September 26, 2016, which became effective on July 1, 2017.

The SEBI order that IIFL is contesting at SAT relates to inspections the regulator conducted to determine if the company complied with the rules on segregating client funds and securities. The regulator discovered that IIFL's actions did not adhere to SEBI regulations.

According to the regulator's ruling, IIFL was found to have improperly designated client bank accounts, misused credit balances in clients' funds for the advantage of clients with debit balances, and failed to separate its own money from clients' funds.

The order noted that SEBI started two separate inquiry proceedings in response to the inspections. By routing transactions through common control accounts, using funds of credit balance clients for settlement obligations of debit balance clients, and using funds of credit balance clients for settlement obligations of proprietary trades, SEBI found that IIFL violated its provisions by combining clients' funds with proprietary funds.

Two show-cause notices were sent to IIFL by the regulator in May 2017 and October 2021. In the end, SEBI ruled IIFL Securities guilty, and as a result, it prohibited the broker from taking on new clients.

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