MC EXPLAINER Did Rs 50,000-crore annual trading volume with 5 crore users trigger SEBI’s warning against opinion trading platforms?

Such platforms offer users to bet on various topics including sports, news, politics, climate, economy, finance, and entertainment among other things.

Earlier this week, on April 29, the Securities and Exchange Board of India (SEBI) issued a caution note against so-called ‘Opinion Trading Platforms’ that basically offer users a platform to bet on outcomes of certain events or scenarios.

It was a simple two-page note that warned investors against participating on such platforms, as those are unregulated entities with no investor protection mechanism.

So, what exactly triggered the regulatory warning and what exactly are ‘Opinion Trading Platforms’. Here is all you need to know.

What exactly are ‘Opinion Trading Platforms’ and what services do they offer to users?

As the names suggests, these platforms allow users to trade or bet based on their opinion on the outcome of a certain event. For instance, with the IPL currently on, one could bet on which team would win the title this year. Or perhaps, ahead of a match featuring Chennai Super Kings, one could bet on whether M S Dhoni would score more than say 50 runs.

Interestingly, such platforms offer users to bet on various topics including sports, news, politics, climate, economy, finance, and entertainment among other things.

For instance, one could bet on whether India’s GDP would grow at 6 percent or more during Q4. One could also bet on whether US would enter recession in 2025. With the recent demise of Pope Francis, one can also bet on whether a new Pope will be elected in the current calendar year.

In all such “scenarios’ there is a rate for betting on ‘yes’ or ‘no’ and based on the total number of bets and opinions, users make – or lose -- money.

There are many such ‘betting’ or ‘Event Outcome’ platforms like Probo, Kalshi, TradeX, Strike, Polymarket, and Trago among others that are popular in the segment.

If these platforms are not regulated by SEBI, then why did the regulator warn investors against such entities?

It is true that these platforms do not come under the regulatory purview of SEBI but the regulator has often cautioned investors against unregulated products and platforms as part of its overall mandate of investor protection.

In the past, SEBI has cautioned investors against cryptos, unregulated platforms offering digital gold or algo strategies and finfluencers among other things.

The recent warning has been triggered by 2-3 key concerns. Firstly, many such platforms use terms like profits, stop loss, trading etc., which are typically used in the stock markets.

Secondly, since the platforms are unregulated, there is no investor protection mechanism. Simply put, users do not have much recourse in case they feel cheated or duped – or simply believe that they did not get a fair deal.

Thirdly and perhaps the most important trigger is the fact that the segment has grown exponentially in the last few years and it was necessary to ring the warning bell to caution gullible investors.

This assumes significance as according to ASCI’s Annual Complaints Report for FY24, illegal betting advertisements were one of the top sources of consumer complaints, accounting for 17 percent of all complaints.

Meanwhile, a recent note by New Indian Consumer Initiative (NICI) stated that the segment now boasts of more than five crore users in India and annual trading volumes in excess of Rs 50,000 crore.

“With venture capital investments and exponential growth in the last few years, opinion trading has gained rapid traction, with over five crore Indian users and estimated annual trading volumes exceeding Rs 50,000 crore,” it said.

Incidentally, the note also highlighted the fact that some platforms wrongly claimed that such trading qualified as ‘financial instrument’ by SEBI or the Commodity Futures Trading Commission (CFTC), which regulates the US derivatives markets.

If not SEBI, then is there any other regulator? Or, are these platforms just illegal?

There is no regulator for such platforms and the question whether they have any legal backing is an interesting one. Most of the ‘Opinion Trading Platforms’ claim that they offer games of skill and not exactly are betting arenas.

This is an important point as games of skill are legal in India and are allowed under the Public Gaming Act, 1867. This view has been upheld by the Supreme Court and there are many state legislations as well. On the other hand, gambling is a criminal offence in India under Section 112 of Bharatiya Nyaya Sanhita, 2023, as per the NICI note.

So, many believe that this is regulatory grey area or a ‘regulatory vacuum’ under which these platforms are operating and this was also one of the key reasons why SEBI though it is important to at least warn the growing investor community of the country.