MTM verification: Will it keep scamsters out or serve as a bullying tool?

The beginning

The idea for the verification tool itself was born from a scuffle on Twitter.

“I had spotted an obviously photoshopped MTM screenshot and called it out, and said that it is easy for us to see that it is fake,” Abid Hassan, cofounder of Sensibull, said in an interview with Moneycontrol. “After a bit of back-and-forth, I said that we will create a verification tool for this and that’s how it started.”

If a trader opts for this tool, he/she can log in to their broker’s account through Sensibull, which has access to the person’s trades, profit and so on, and it will generate a screenshot and a link that can then be shared via social-media platforms. When another user clicks on the Sensibull-generated link, he/she can see a read-only MTM statement taken from the backend of the broking platform that the trader uses.

Hassan said he never imagined the verification feature would become a big talking point in such a short time. People are now compelling traders to post verified screenshots of their positions, which, according to Hassan, has caused fraudsters to even quit social-media platforms.

Sensibull officially launched the feature after the close of the November F&O series, on November 24.

Vivek Bajaj, founder of Elearnmarkets and StockEdge and a Sebi-registered research analyst, said the verification feature is a great first step, but people should not be compelled to get their trades verified.

“The intent of this exercise was to discourage fake people from posting fake statements. In that, this initiative has brought in some change, at least it has created a ripple effect in the market. People who were doing it (posting MTM statements including fake ones) without thinking twice have started rethinking about this because then everyone will tell them to get it verified. So there is some self-regulation and there is a change in thinking, which is very good,” he said.

But he has reservations over how Sensibull’s feature is considered a touchstone and how social-media users are compelling traders to get their statements verified.

Loopholes in the tool

Bajaj also pointed to a loophole in the tool. A trader can pick the time at which he/she wants the screenshots generated and the verified screenshot will carry that timestamp.

“It captures moment-to-moment data. So if I post my screenshot when I am making a profit (or positions are profitable), but after 10 minutes if my profit is gone but I don’t post a screenshot of that, then?”

Sundar, too, told Moneycontrol that MTM statements can be misleading. The statements can show a person’s trade as profitable when his/her overall trade when it closes has resulted in a loss and vice versa.

For example, if a trader’s positions adds up to Rs 1,000 on day 1, to Rs 900 on day 2 and Rs 950 on day 3, then the MTM of day 3 will show a profit of Rs 50 even though the trader ends up with a loss of Rs 50 if the trade is closed after three days. In the futures market, the contract value shown in the MTM statement is the difference between the contract value on that day and the contract value on the previous day.

Hassan agreed the verification tool does not track positions till the closing of a trade (which can then be logged as profit or loss) but added that this can be partly solved by tracking the history page of any trader who opts to be verified.

If a trader posts erratically and only at moments when positions are profitable, a discerning user may be able to make out that the trader is presenting only part of the picture. Also, the verification feature marks the days in which the trader has not shared any statement.

If all the positions of a trader have to be made available in whatever time frame a user wants, that would mean a massive amount of data transactions for the broker involved and a huge breach of privacy for the trader, who may then pull out of platforms that allow this.

The brokers that Sensibull services do not allow all positions of a trader on the history page to be shared – only the profit and loss of a particular day. While some traders are opposed to getting MTM statements verified, they are fine with validation of their profit and loss (P&L) statements.

Sundar said the P&L statements of his trading and training company Mansun Consultancy could be downloaded from the corporate affairs ministry website.

However, an expert said the P&L statement may not reveal much. F&O trading income isn’t reported separately but is clubbed under business income, which can include training income. If a trader has made losses with trades, it could be camouflaged by his/her training income.

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Data protection

Another concern raised by a trader who did not want to be identified was that if anyone is forced to share their positions regularly, it could take away their edge.

“If you are a straddle seller and your positions are shared consistently, then you may see more people selling the straddle and the opportunity can go down,” he said. “Also anyone who has access to this data, like Sensibull, can replicate the strategies or sell the data forward. There is no data protection.”

Hassan said they can’t trade because they are a Sebi-registered research analyst and their books are audited annually. Also, he said that if a trader is concerned about losing their edge, he/she does not have to share their live positions. They can share the screenshot of the previous day or after they have closed all trades, which means the screenshot will only have the profit or loss.

Another expert said institutional investors are rarely interested in retail traders’ strategy.

“If anyone was really keen on stealing anyone’s strategy, they could write smart algos to capture trading patterns from any of the exchanges’ data,” the expert said.