Behavioral Investment

How good is the bar on trading leagues, social media stock tips by SEBI

SEBI thinks it is impending down hard on the fraudulent investment advisers by proposing to ban unapproved trading tips via SMSes, WhatsApp, Twitter, Facebook or any other social media boards, along with competitions, games, and leagues involving the securities market.

As in view of SEBI, the proposal to curb the practice of providing trading tips via any social media channel underlines following guidelines:

  • No one should be permitted to exchange trading tips, recommendations relating to stocks via SMSes, email, phone calls, WhatsApp, Twitter, Facebook and WeChat etc.; unless the person is a registered Investment Advisor.
  • An endowment to be added soon for Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market (PFUTP)

According to SEBI, these proposals are intended at practicing “uniform standards” and addressing the holes or intersections in legal and regulatory standards leading all the mediators or people involved in providing investment advisory facilities.

Few questions that immediately pop out in my mind by looking at these clauses, are:

  1. Does this prohibition mean that if I like to talk or discuss about any stock that I am interested in to any friend of mine over WhatsApp; I would be punished by SEBI for doing so (irrespective of the fact whether I get benefitted by that or not)?
  2. What assurance does SEBI provide that the registered investment advisors are not going to eat up the common man’s money by fraudulent advice or are always being truthful to the investors’ interest? Do they want to say that if you want to do the fraudulent advisory, do it but after registering with us? Since by that you become a registered person to do the damage for the investor and don’t hold accountable for it at all, because for any such instances’ occurrence SEBI will keep on chasing after few years.
  3. Does SEBI really want to become a Sensor Board for keeping an eye on the investors’ and advisors’ activities, if yes? It’s definitely not SEBI’s job to do!
  4. Last but not the least, does SEBI want to abandon every Indian’s Freedom of Speech which is a constitutional right of every Indian.
  5. Does SEBI want to kill a healthy competition of the market by prohibiting all the competitions, schemes and leagues? Bloggers and Twitter followers provide their genuine advice and feedback on their respective channels; these regulations could be harassing for their honest market analysis and commentary with regards to equity investments.

Restricting something does not mean that you doing right, people have freedom to discuss as lot of knowledge in today’s time we get from social media on shares. How a common investor believed to gain that if SEBI restricts that? Or SEBI wants that gains are not meant for small retail investors? SEBI should seriously think about the advantages of using the social media by the investors, advisors and others. As, technology is there for reducing the gap between the retail investor and the advisors.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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