It was October 2022 when the stock markets started tightening the noose around stock gaming apps that provided real-time price data and mimicked real-time equity trading. It began with NSE issuing a cease and desist order to such apps and portals that engaged in these activities and cautioning them with severe consequences upon failure to comply with the said order. Now SEBI has taken charge and issued a circular prohibiting stock market participants from sharing real-time price data with third parties except under notified conditions. Check out this blog to know all the details of this new circular and how it will impact market intermediaries and investors at large.
Read More: Financial Regulators in India
For years, stock exchanges have shared real-time price data with market participants like depositories and registered stock brokers. However, some entities, such as stock gaming apps and platforms, have misused this data for gambling and betting practices or virtual trading. These portals do not use real-time market data for their intended purposes, which include investor education and ensuring smooth trading activities. Additionally, some of these portals offer prize money to attract investors, conflicting with SEBI's main goal of protecting investors' interests.
To address this, the NSE had previously issued a cease and desist order for stock gaming apps, which is detailed in our previous blog written by Mr. Kapil Marwaha, Founder & MD, TrueData. SEBI has issued a new circular to remove any confusion and clarify its stance on the issue. The circular sets clear rules on how price data should be used and shared with third parties, effectively shutting down stock gaming or fantasy gaming apps, as well as trading simulation or virtual trading portals that use real-time market data improperly. This circular will take effect 30 days from May 24, 2024, which means it will be enforced starting June 23, 2024.
SEBI has observed that some online platforms, including apps and websites, are using real-time price data of listed companies to offer virtual trading services and fantasy games. These platforms sometimes provide monetary incentives based on the performance of virtual stock portfolios, which raises concerns about the misuse and unauthorised use of price data. The primary objective of this SEBI circular is to protect the interests of investors and ensure the development and regulation of the securities market. By curbing the misuse of real-time price data, SEBI aims to promote a fair and transparent market environment.
Here is a brief analysis of the highlights of this circular.
Market Infrastructure Institutions (MIIs) and registered market intermediaries must ensure that real-time price data is not shared with third parties, including various platforms, unless it is necessary for the orderly functioning of the securities market or to meet regulatory requirements.
When MIIs and market intermediaries decide to share real-time price data with third parties, they must do so by entering into formal agreements with those entities. These agreements should clearly outline what the data will be used for and explain why it is necessary. The list of entities and activities must be reviewed by the Board of MIIs or market intermediaries at least once a financial year. This ensures that the sharing of data is continuously monitored and remains justified.
Real-time price data can be shared for investor education and awareness activities, but only with a one-day lag and without offering any monetary incentives to participants. This measure aims to promote genuine educational efforts while preventing the data from being used for gambling or betting purposes.
MIIs and intermediaries are required to exercise caution and careful judgement when sharing real-time price data. This involves ensuring that the data is shared responsibly and that the legal agreements in place include provisions to prevent its misuse. The goal is to make sure that the data is not exploited for unintended or unauthorised activities, protecting the integrity of the market.
The circular will be applicable 30 days from its issuance which means it will come into effect on June 23, 2024. MIIs are required to take necessary steps to implement the norms, amend relevant by-laws, rules, and regulations, and inform market participants, including investors, by disseminating the circular on their websites.
The need for this circular arose from the observation that certain online platforms, apps, and websites were offering virtual trading services and fantasy games based on the real-time share prices of listed companies. These platforms sometimes provided monetary incentives based on the performance of virtual stock portfolios, raising concerns about the misuse and unauthorised use of real-time price data. The situation was deliberated by the Secondary Market Advisory Committee of SEBI (SMAC), which recognized the potential risks such practices posed to the integrity of the securities market. Without proper regulation, the uncontrolled sharing and use of real-time price data could lead to speculative activities, misinformation, and a general lack of market transparency. To address these issues, SEBI decided to establish stringent norms ensuring that real-time price data is shared only when necessary for the orderly functioning of the market or to fulfil regulatory requirements.
The revision in the norms for sharing real-time price data is aimed at increasing overall market integrity and transparency for the investors at large. The implications of this circular for the investors and other market participants are explained hereunder.
The primary impact of these reforms will be the enhanced protection of investor interests. By restricting the misuse of real-time price data, SEBI aims to ensure that such information is used solely for legitimate market activities and investor education. This measure will protect investors from being lured into speculative and gambling-like activities promoted by certain online platforms, thus reducing the risk of financial losses and promoting a healthier investment environment.
By curbing platforms that offer monetary incentives based on virtual trading, SEBI is working to eliminate misleading practices that could deceive inexperienced investors. This step will ensure that investors, especially beginners, are not misled by fantasy games or virtual trading schemes that can give a false impression of market dynamics and investment returns.
The requirement for MIIs and market intermediaries to enter into detailed agreements with third parties and review these agreements annually introduces a higher level of accountability and transparency. Market participants will benefit from knowing that any sharing of real-time price data is being closely monitored and justified. This oversight helps build trust in the regulatory framework and reassures investors that market operations are being conducted fairly.
These reforms are expected to promote fair and ethical practices within the securities market. By eliminating platforms that misuse real-time data for profit through misleading games and incentives, SEBI is setting a precedent for transparency and responsibility. This will encourage the development of more legitimate and useful market tools and platforms, ultimately benefiting all market participants.
The reforms facilitate the use of real-time price data for investor education and awareness activities, albeit with a one-day lag and without monetary incentives. This approach ensures that educational initiatives can leverage accurate market data to teach investors about market dynamics and investment strategies without the risk of promoting speculative behaviour. As a result, investors, especially new ones, will have access to valuable educational resources that can help them make informed investment decisions.
The reforms will significantly enhance the integrity and stability of the market by ensuring that real-time price data is shared only when necessary for the orderly functioning of the securities market or to meet regulatory requirements. SEBI aims to create a more transparent and stable market environment by curbing unauthorised and speculative use of this data. Investors can trust that price movements are genuine and not influenced by artificial activities, leading to a more predictable and stable market conducive to long-term investment planning and growth.
The surge in retail participation in stock markets, driven by low interest rates, work-from-home arrangements, and a search for alternative income sources, has captured the attention of startups and VCs aiming to develop stock market products. With an increase in potential investors, opportunities for startups are abundant. However, SEBI regulations prohibit competitions or games involving securities, and high data feed costs make fantasy stock market games impractical. Social trading faces similar challenges due to stringent requirements for Registered Investment Advisers (RIAs) and Research Analysts (RAs), and a ban on automated trading or copy trading for retail investors.
SEBI's sandbox offers a potential pathway for innovation in this environment. By creating a Minimum Viable Product (MVP) and seeking approval within the sandbox, startups can demonstrate their solutions' benefits to investors and the market ecosystem. This sandbox can thus facilitate the development of compliant, innovative products that enhance investor participation and education in the Indian stock market.
The SEBI norms have outlined the regulations for the use and sharing of real-time price data and also entrusted MII and other market participants with their role regarding the same. This move is welcomed by the market participants as it removes the ambiguity on the validity of using the real-time price data as well as curbs the stock gaming and fantasy apps that were potentially harming the investor’s interests.
We at TrueData are in adherence to the rules regarding the sharing of real-time price data and do not support any kind of Gaming / Virtual trading / Simulation usage of the same. The data provided by TrueData is intended for the personal use of traders and investors and complies with SEBI/Exchange regulations. Any violations reported in this regard may result in TrueData terminating the subscription of any user or platform found misusing the data or breaching terms and regulations.
Here is a brief snapshot of the Terms and Conditions of the data usage on the TrueData portal.
.jpg)
TrueData does not provide market data for any kind of Gaming / Virtual trading / Simulation usage, as per NSE/SEBI guidelines.
If you have such requirements, please take approvals from SEBI and the concerned exchanges before approaching us.
In case of any violation of the above terms if misuse is discovered by TrueData or if there is any objection to your usage by the exchanges, TrueData has the right to terminate your subscription without any prior notice of intimation.
Let us know your thoughts about this SEBI order in the comments below. Do you think these steps need to be taken ? What other steps do you think the regulator can take to safeguard investor interests ?
Read More: Top NSE Data Vendor in India
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
After the buzz around the general elections in India had just concluded, the sta...
Introduction In an attempt to curb speculative trading, the exchanges move stoc...
The stock market in India has fascinated general Indian masses for long, perhap...
