Investing in different asset classes is the key to financial security and stability. While the stock market looks like a lucrative idea, many individuals are often in the race to earn profits. However, they miss the fact that investing in the stock market is an art. Investors want to get rich quickly without doing the necessary market research. They rely on financial advice and stock market tips available on platforms like WhatsApp, Telegram, Facebook, YouTube, and Twitter. This article examines the legality of providing stock market tips on social media platforms.
Why do investors rely on stock market tips available on the Internet?
Social media is an uncontrolled and democratised platform for disseminating facts and opinions. As of 2022, India has over 755 million social media users. A UNDP report on social media engagement in India shows a youth-dominant virtual space. Novice investors may consider the capital market the best avenue for their investments. For them, idle cash can be a wasted sum. With active participation on social media and fascination for the capital market, investors rely on stock market tips available on the internet. In so many instances, the finance influencers (“influencers”) advertise earning exponential profit in a short duration of time by following their tips and techniques.
Understanding the technicalities and complex procedures of the market is not everyone’s cup of tea. A person interested in the subject or future profits can only learn through experience and practice. In such a situation, investors look for easier alternatives. There can be no better alternative when something is as accessible as social media tips.
Should you rely on stock market tips on the Internet?
Advice available on a random social media account may lack the backing of experts’ knowledge. Further, it is also possible that the individuals providing stock market tips have not registered with SEBI. Irrespective of the platform, advice on any platform is merely an opinion. If you act on such advice, you cannot recover the losses incurred. In the stock market, one’s loss is another’s profit. Even if you act on advice provided by authorised advisers, you cannot claim your losses. When you act on the advice, you impliedly accept that you are accepting the risk.
The Securities and Exchange Board of India (SEBI) has recently raided two companies in Gujarat. These companies were providing financial advice on Telegram without any authorisation or registration. These companies were earning huge profits by squaring off their position after the users had acted on their advice and the price of shares increased. When these companies provided stock market tips, their followers acted on the advice. As a result, the demand for the shares of a particular company will increase, and so will the price per share. Once the price increased, these companies closed their positions and made profits.
In another instance, SEBI imposed a penalty of ₹15 lakhs on two senior employees of Antique Broking for sharing unpublished price sensitive information (UPSI). These executives were a part of WhatsApp groups that exchanged insider tips of several blue-chip companies. They subsequently forwarded these tips to their clients, who were institutional investors.
What is the role of SEBI?
SEBI plays a significant role in controlling, protecting, and managing the stockholders in the capital market. The law does not allow manipulation or control of the capital market through social media platforms. As per SEBI rules and regulations, only authorised research analysts and investment advisers can provide financial advice. However, there is a difference between research analysts and investment advisers. Research analysts can receive authorisation for giving recommendations and tips for stocks and securities.
On the other hand, investment advisers provide the same function but with personalised services. The SEBI (Intermediaries) Regulations, 2008, the SEBI (Investment Advisers) Regulations, 2013, and the SEBI (Research Analysts) Regulations, 2014, govern the process for registration of analysts and advisers. The eligibility criteria for a research analyst requires passing the National Institute of Securities Market Research Examination (NISM Series 15). For an investment advisor, the requirement is to receive certification after passing the NISM Series 10A and 10B papers. After an individual passes these tests, they have to procure an appropriate license for either research analyst or investment adviser from SEBI.
The practical problem that an investor may face is filtering information available on social media. SEBI does not prohibit any authorised research analyst and investment adviser from increasing social media reach and customer base. Therefore, social media has both sets of advice, authorised and unauthorised. For the benefit of investors, SEBI provides a list of authorised research analysts and investment advisers on its website.
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