SEBI warns investors against unauthorised virtual trading, gaming platforms offering stock price-based advice

The Securities and Exchange Board of India (SEBI) on Monday cautioned investors about virtual trading and gaming platforms that provide trading advice based on stock prices.

“It has come to the notice of the Securities and Exchange Board of India that some apps/web applications/platforms are offering virtual trading services or paper trading or fantasy games to the public based on stock price data of listed companies,” SEBI said in a circular.

According to the regulator, this practice violates Sebi norms.

“Such activities are in violation of the Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992, which are laws designed to protect investors,” it said.

Legal experts believed that Sebi’s move to issue advisories was to prevent unauthorised platforms from exploiting investors rather than penalising investors themselves. “By mimicking securities market activities and promising financial returns, many of these platforms can create an unauthorised trading experience that often leads to investor exploitation,” said Sumit Agrawal, founder of Regstreet Law and former SEBI officer.

 “A recent case, for instance, involved a sophisticated WhatsApp fraud where the perpetrators used the former Sebi chairperson’s name to deceive and lure investors, with the scheme designed so convincingly that it seemed legitimate,” he added.

On August 30, 2016, SEBI issued a similar notice advising investors to avoid schemes and competitions related to the markets. The regulator has advised investors to invest in the markets through registered intermediaries and cautioned them to share personal details carefully.

“Participation in unauthorised schemes, including sharing of confidential and personal trading data, is at the investors’ own risk, cost and consequences, as such schemes/platforms are not registered with SEBI,” the regulator said.

“SEBI is issuing this caution, advising investors to not engage with or undertake investment or trading activities through un-registered intermediaries/ web applications/ platforms/apps,” it added.

Senior securities lawyer Chirag M Shah said that it was up to the investors to ‘be aware as buyers’ about the platforms they were engaging with. He also added that SEBI made efforts to inform investors about the registered intermediaries and authorised trading platforms, but it was up to the investors to ensure they checked the same before doing any transaction.

The market regulator has informed investors that they will not be able to raise complaints in accordance with redressal mechanisms approved by SEBI if they engage in such activities.

SEBI’s redressal mechanisms

The redressal mechanisms include SCORES, an online grievance redressal platform provided by SEBI, and investor grievance redressal mechanisms provided by exchanges.

“The investors may note that for any kind of disputes relating to such activity, none of the following recourses will be available to investors: Benefits of investor protection under SEBI/ Exchange(s) Jurisdiction including SCORES. Investor grievance redressal mechanism administered by Exchange(s) or the online dispute resolution mechanism administered by Exchanges/Depositories,” the market regulator said.

When asked about the recourse investors would have if they encountered fraud or loss on platforms, experts said that investors had limited options since the platforms operate outside SEBI’s regulated framework. This is why the investors could not benefit from the dispute resolution and grievance mechanisms typically available for authorised investments.