With the Securities and Exchange Board of India (Sebi) cracking down on fantasy stock gaming and virtual trading platforms based on real-time share prices of listed companies, the new rules can put make thing trickier for investor educational platforms as well, experts said.
“Sebi’s circular essentially means that it ends all platforms offering trading competition, demo trading, CFDs, and more,” Nithin Kamath, the founder of online brokerage Zerodha and a member of Sebi’s Secondary Market Advisory Committee (SMAC) had said on his social media.
CFDs or contracts for difference are a form of ‘dabba’ trading that can be used to bet on underlying securities’ price movements without any party in the transaction owning the underlying asset, and is outside the regulatory system.
Last Friday, Sebi directed stock exchanges and depositories to stop sharing real-time price data with third parties to curb using such data for monetary incentives based on virtual stock portfolio performance. Fantasy stock gaming and virtual trading platforms use real-time data to allow users to participate and compete based on live stock trading for a fee and award prizes or rewards.
These platforms also facilitate ‘copy trading’ or ‘dabba’ trading, wherein traders place deals and settle securities without the trades actually being executed on any stock exchange, and falls outside Sebi’s purview. Copy trading or ‘dabba’ trading tends to give a false notion to the user that they have become skilled at the game of stock trading, and encourages them to participate in the real stock trading world based on that confidence, experts said.
With several such platforms having emerged in recent years, this unregulated segment threatens misuse of data for monetary incentives and marks an uncomfortable territory for the regulator, experts said.
However, Sebi has allowed sharing of data for educational purposes, but only with a day’s lag. Some of these include live simulation-based mock trading platforms that provide investor education and awareness without trade-linked rewards or the element of gambling.
“While the regulator has recognised investor education as a valid exception, a day’s lag in market price data will not serve the use-case for live simulation-based activities or fintech apps,” Sanjam Arora, partner at Trilegal said.
A delayed feed is expected to dial down user interest in such learning platforms, affecting their business models.
“Given that real time data is intrinsic to the operation of virtual trading or stock gaming platforms, this has undoubtedly resulted in an unfavourable regulatory environment even for educational platforms, which can now use only delayed data feed and not offer any monetary incentive,” Avisha Gupta, partner at Luthra and Luthra Law Offices said.
Sebi intends to allow usage of real time price data only for legitimate trading purposes, thus putting a stopper or delay for all other third party usages.
Meanwhile, media agencies providing real-time data feeds will not be affected by this, as they can draw up a formal agreement with the data providing market intermediaries for the same, as per Sebi’s rules.