SEBI to Take Action Against Firms Over Stock Tips on Social Media, Could Impose Complete Ban From Markets

India's market regulator is to take action against at least four companies alleged to have been pushing stock tips via social media without authorisation, documents reviewed by Reuters showed and two sources with direct knowledge of the matter said.

The regulator's action, which follow four earlier orders passed in the past twelve months, aim to signal growing concern that retail investors are being lured into stock market investments by companies and individuals who are not authorised to offer financial advice.

The Securities and Exchange Board of India's rules say that only advisers registered with it can offer investment advice.

Action against these entities could range from a complete ban from accessing capital markets to penalties and the refunding of gains made from the wrongful acts, the first source cited above said.

Companies potentially facing enforcement action are digital investment platforms which offer financial products and investment advice without appropriate regulatory licences, the sources said.

Details of these companies are not known.

"SEBI is examining in these cases if there was an act of fraud or a case of unregistered investment advice," the first of the two sources cited above said. "The regulator wants to act against these financial influencers on case-to-case basis and use existing regulatory provisions."

"This is a part of series of enforcement actions that the regulator is taking to tackle unsolicited investment advice being peddled on social media," said the second source cited above.

Broader Fight

India, along with other markets, experienced a surge in retail investors buying shares during the pandemic and also a proliferation of unregistered advisers targeting these investors.

A SEBI study released on January 25 this year, showed that retail investors in India's futures and options markets rose by about 500 percent between financial year 2018-19 and 2021-22, and nine out of 10 of them incurred losses.

The regulator will consult the market participants on ways to regulate social media financial influencers more broadly.

These influencers could be required to make disclosures and disclaimers on their social media platforms before they offer any public advice. The disclosures could include their stock market investments and that they have not received payment to promote financial products or stocks, the two people cited above said.

The regulator has asked for help from local stock exchanges and asset management companies to identify online chat groups where investment advice is being offered, the sources said.

Regulatory and exchange officials said many of these channels have between 50,000-100,000 subscribers and there are thousands of such channels.

"Since August last year, exchanges have issued as many as 30 cautionary letters against companies and individuals who are promising assured returns through social media platforms without an exchange and regulatory licence," said a senior exchange official.

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