The recent directions from the market regulator on sharing real-time price data with third parties could land a big blow to unscrupulous stock-market trainers.
While legal experts are divided on whether the norms would stop these trainers altogether, they agree that it would create an unfavourable regulatory environment for them.
The norms prescribed by the Securities and Exchange Board of India (SEBI) prohibit market infrastructure institutions (MIIs) and market intermediaries such as brokerages from sharing live market data with third parties, except where sharing of such information is needed for the orderly functioning of the securities market or for fulfilling regulatory requirements. They also say that market price data may be shared for investor education and awareness activities but—very importantly—with a lag of one day.
Also read: SEBI reins in sharing of real-time stock prices with gaming apps
This requirement of a delay could put a huge dent on many unscrupulous stock-market training workshops and institutes that draw their clientele largely by promising practice sessions in the live market. That is, these trainers promise to "handhold" them through a live market session.
If these trainers are allowed to use only data with a one-day lag, their sessions and workshops may soon start emptying out, according to market insiders.
Is there a workaround?
Legal experts that Moneycontrol spoke to confirmed that MIIs and intermediaries such as brokerages can make live market data available to third parties for investor education with the prescribed delay.
But not everyone agrees that the norms could spell the end of unscrupulous trainers and their practices. It has to do with a workaround that is still available, given the way these training sessions are currently being conducted.
The trainers often conduct them using their personal trading accounts. That is, they project their trading screen onto a large screen or share their screens on platforms such as YouTube and then take the trades for their "students" to follow.
While some legal experts say that the norms can stop these sessions too, others believe that these norms do not explicitly prohibit such sessions.
Anand Kankani, a Practising Company Secretary and a person who regularly advises investment advisors and research analysts, believes that the new norms could stop stock-trade training with live market data.
"The law needs to be adhered to as what is not prescribed is also proscribed. That is, the current circular may not explicitly say that you cannot use your personal account to conduct training classes but it does say that you cannot use live market data for educational and training purposes," Kankani pointed out.
"Therefore, using live market data—even if it is through your personal account—for training can be seen as a violation of the norms," he added.
Manendra Singh, partner at Economic Laws Practice, said that there is not enough clarity on this yet.
"For situations such as a trainer opening his/her demat or trading account and projecting it onto a bigger screen and conducting the training, it is not amply clear if this could be said to be in violation of the circular. This is because in such a situation there is no transfer of data to a third party but the data is being used by the client itself," he explained.
That said, Singh believes that the circular's provisions are open to interpretation and they could lead to stockbrokers building a restraining provision into their client agreements.
"The provisions under the circular could be interpreted to prohibit a person from using his/her account in such a matter but the circular does not say that in black and white for now. Also, in future, maybe brokers can add a clause into the client service agreement that the clients cannot use their account data for sharing live market data for training," said Singh.
End to CFDs
On May 25, Nithin Kamath, the founder of online brokerage Zerodha and a member of SEBI's Secondary Market Advisory Committee (SMAC), wrote in his blog that the circular "essentially means that it ends all platforms offering trading competition, demo trading, CFDs, and more".
CFDs or contracts for difference are instruments that can be used to bet on underlying securities' price movements without any party in the transaction owning the underlying asset. It is a form of dabba trading—where the buying and selling takes place outside the regulatory system—and has become popular over the past few years, with people betting on price movements of various assets including forex pairs and commodities.
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