The Securities and Exchange Board of India (SEBI) has raised concerns over a surge in unauthorized virtual trading and gaming platforms that use stock price data to offer a simulated trading experience. According to SEBI's circular released on Monday, several online applications and platforms are enticing the public with "virtual trading services," "paper trading," and "fantasy games" based on stock prices, which the regulator says violate established securities laws.Jaipur Stock
SEBI highlighted that these platforms, by providing stock price-based trading services, are operating outside the legal framework designed to protect investors. This practice, SEBI noted, breaches the Securities Contract (Regulation) Act of 1956 and the SEBI Act of 1992, as these laws require such financial activities to be regulated to safeguard investor interests.
Sumit Agrawal, founder of Regstreet Law and a former SEBI officer, explained that SEBI's advisory aims to curb unauthorized platforms that mimic securities trading. "Many of these platforms are designed to appear like real trading platforms, creating an experience that can often lead to investor exploitation. By promising financial returns through virtual trades, they lure investors into unauthorised practices," he said. Agrawal referenced a recent case in which a sophisticated WhatsApp scheme used the name of a former SEBI chairperson to gain investor trust.
This is not the first time SEBI has flagged such activities. On August 30, 2016, the regulator issued a similar advisory, urging investors to avoid schemes and competitions related to securities trading that could put them at risk. In Monday's circular, SEBI again stressed that investors should only engage in the markets through registered intermediaries and exercise caution when sharing personal details.
"Participation in unauthorised schemes, including sharing of confidential trading data, is at the investor's own risk," SEBI warned. "Such platforms are not registered with SEBI, and investors should refrain from using them."
SEBI's advisory points out a limitation for investors using these unauthorized platforms: if any issues or disputes arise, investors will not have access to SEBI's grievance redressal systems. The regulator stated that investors participating in these schemes cannot expect support from SEBI or exchange-operated dispute resolution mechanismsJaipur Investment. SEBI's redressal channels include:
SCORES: An online grievance redressal platform where investors can lodge complaints.
Exchange-Based Grievance Redressal Mechanisms: These are available to investors trading on authorized platforms regulated by SEBI.
Senior securities lawyer Chirag M Shah emphasized the importance of "buyer awareness," stressing that while SEBI continues to educate investors on the need to verify intermediaries' registration, the responsibility ultimately falls on investors. "SEBI is making continuous efforts to inform investors, but individuals must ensure they are engaging with verified platforms before making transactions," Shah said.
The lack of regulation around these platforms leaves investors exposed. As SEBI pointed out, if investors encounter fraudulent activities or experience financial loss on unauthorized platforms, they won't have the protections afforded by SEBI's regulated framework. The redressal process in such cases is severely limited, as these platforms operate outside of SEBI's jurisdiction.
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