SEBI proposes allowing use of stock data with a lag of 3 months for investor education

If the name of any security or the market price data is used for the purpose of education, such market price data may be used with a lag of at least three months, the consultation paper said

A person who is doing only investor education should not use market price data of the preceding three months, the market regulator has proposed in a consultation paper issued on Friday.

The Securities and Exchange Board of India (SEBI) has floated a consultation paper on December 6, seeking comments to clarify various points on how regulated entities such as stock brokers and exchanges can associate with unregistered entities.

This would be a crucial point since many unregistered investment advisors claim that they are doing only investor education when discussing stocks and trading calls.

Also read: SEBI proposes allowing use of stock data with a lag of 3 months for investor education

In the consultation paper, the regulator has suggested that, for investor education no reference to data of a particular security should be made unless the data used is with a lag of three months.

The paper said, "A person engaged solely in education shall mean that such person is not engaged in any of the
wo prohibited activities, such person should not be using the market price data of the preceding three months to speak/talk/display the name of any security including using any code name of the security in his/her talk/speech, video, ticker, screen share etc. indicating the price, opinion, advice or recommendations related to security or securities. If the name of any security or the market price data is used for the purpose of education, such market price data may be used with a lag of at least three months."

In the consultation paper, the regulator said that investor education is not a prohibited activity. But before associating with such an educator, the registered entity must ensure that such a person does not engage in the two activities prohibited under the current regulations:

1.providing advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or

2.making any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

For registered entities

Another suggestion is to hold the regulated/registered entity responsible for ensuring that any person associated with it or it agent directly or indirectly does not engage in the two prohibited activities.

Other clarifications suggested in the consultation paper are as follows:

Can a regulated entity or their agent associate for their branding/marketing/promotional activities with another person?

The persons regulated by the Board and their agents are allowed to associate for their branding/marketing/promotional activities with another person provided that such another person is not engaged in any of the abovementioned two prohibited activities, directly or indirectly.

Can registered intermediaries receive client information from entity engaging in prohibited activities?

For the purposes of these regulations, “association” means-
(a) a transaction involving money or money’s worth;
(b) referral of a client;
(c) interaction of information technology systems;
(d) any other association of a similar nature or character.
Sharing client information is of similar nature as of “referral of a client”. Hence, making any payment or receiving payment or sharing any client information from or with any person shall amount to “association” under these regulations, and is not permitted.
Thus, such intermediaries are prohibited to make any payment or receive payment or share any client information from or with another person engaged in any of the abovementioned two prohibited activities, directly or indirectly