Cracking the whip on market manipulation, Sebi has proposed a ban unauthorised stock trading tips through SMS, WhatsApp, Twitter, Facebook and other social media platforms.
In a detailed consultation paper, Sebi has proposed to ban ‘free trial’ offers by investment advisors for their prospective clients and sought to make it mandatory for even registered analysts to provide their research reports for all class of investors at the same time.
The proposal for wide-ranging changes to existing rules follow mushrooming of several unauthorised entities luring gullible investors through their trading tips — including through bulk SMS, WhatsApp, Facebook, Twitter, email, blogs and various other internet and mobile-based platforms — while a number of trading leagues have also come up in recent past. “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 is specifically exempted from obtaining registration. No person shall organize or offer any scheme/ competition/ game/ league on securities or related to securities market,” the Sebi paper said.
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Sebi has also proposed a detailed ‘advertisement code’ for those providing investment advice to check misleading advertisements promising unrealistic returns in the securities market or to influence people’s investment decisions, as also for those organising schemes, competitions, games and leagues on securities or related to securities market.
Some of these trading leagues are backed by Bollywood celebrities and others, but are facing the regulatory heat as they are not registered under relevant Sebi regulations.
It has also proposed a re-look on the exemption from registration as an investment adviser, provided to mutual fund distributors and other registered market intermediaries. Besides, banks, NBFCs and various corporate bodies would have to set up a separate subsidiary for investment advisory services. Under current rules, such services can be provided via a separate division or department.
Sebi has proposed a time period of three years for existing entities offering investment advisory services through separate department or division to set up a separate subsidiary. Similar time period can be provided to the mutual fund distributors and other registered market entities currently exempted from registration as investment advisors.
The watchdog would make efforts to provide more clarity about the activities carried out by investment advisers and research analysts. In order to clearly define the terms and conditions of service, Sebi has proposed that an investment adviser would have at least two days prior to onboarding the clients to provide ‘Rights and Obligations’ document to them.
The document would state the inter se relationship and terms of investment advisory services offered. The investment adviser would have to provide the client with the relevant contact details of the designated person responsible for dispute resolution, the draft paper said.