IndiaCorpLaw

SEBI’s Proposals on Stock Advice through Social Media

Nearly a month ago, the Securities and
Exchange Board of India (SEBI) issued a Consultation
Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations,
2013
. Although the consultation paper deals with a number of issues
relating to investment advice, one aspect has received undue attention, and
perhaps rightly so. Tucked into the consultation paper are a couple of paragraphs
that have garnered criticism:

4.5.2 In order to
curb such practice of providing trading tips/messages containing buy/sell/hold
recommendations on securities, it is proposed that:

a) No person shall
be allowed to provide trading tips, stock specific recommendations to the
general public through short message services (SMSs), email, telephonic calls,
etc. unless such persons obtain registration as an Investment Adviser or are
specifically exempted from obtaining registration.

b) 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 are specifically exempted from obtaining
registration.

c) A provision or
clause shall be added in the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003 {PFUTP Regulations}
to restrict such activities by making necessary amendments to PFTUP
Regulations.

This proposal has been critiqued on
the ground that it amounts to regulatory overreach and may have the effect of
stifling free speech. For leading examples of such a critique, please see:

1.         Professor
J.R. Varma on his Financial
Markets Blog
;

2.         Ajay
Shah and Bhargavi Zaveri on Ajay
Shah’s Blog
; and

3.         Sandeep
Parekh in the Economic
Times
.