Friday, November 4, 2016

SEBI’s Proposals on Stock Advice through Social Media

Nearly a month ago, the Securities and Exchange Board of India (SEBI) issued a Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013. Although the consultation paper deals with a number of issues relating to investment advice, one aspect has received undue attention, and perhaps rightly so. Tucked into the consultation paper are a couple of paragraphs that have garnered criticism:

4.5.2 In order to curb such practice of providing trading tips/messages containing buy/sell/hold recommendations on securities, it is proposed that:

a) No person shall be allowed to provide trading tips, stock specific recommendations to the general public through short message services (SMSs), email, telephonic calls, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration.

b) No person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration.

c) A provision or clause shall be added in the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 {PFUTP Regulations} to restrict such activities by making necessary amendments to PFTUP Regulations.

This proposal has been critiqued on the ground that it amounts to regulatory overreach and may have the effect of stifling free speech. For leading examples of such a critique, please see:

1.         Professor J.R. Varma on his Financial Markets Blog;

2.         Ajay Shah and Bhargavi Zaveri on Ajay Shah’s Blog; and

3.         Sandeep Parekh in the Economic Times.


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