12 Jun 2024
SEBI has restricted stock exchanges from sharing live stock price data with third parties, with the objective of curbing virtual stock trading platforms. This update discusses the backdrop to this development and whether there remains a viable regulatory roadmap for this niche fintech offering.
Virtual stock trading platforms have become popular in recent years. Offering an experience similar to fantasy sports leagues, these apps allow users to build a virtual portfolio of stocks and earn rewards based on its performance. These apps use ‘live’ stock price data to simulate the stock market experience for users.
SEBI, by a circular dated 24 May 2024, has now barred stock exchanges and other market intermediaries from sharing real-time stock price data with third parties. There are limited exceptions to this rule (for instance, such data may be shared for “orderly functioning of the securities market or for fulfilling regulatory requirements”).
These apps/platforms have so far operated in a regulatory grey area. There are concerns that such offerings could amount to ‘gambling’, although there is basis to argue that these should be recognised as games of ‘skill’ and not ‘chance’ (and therefore, not made subject to legal restrictions on gambling). Regulators in some jurisdictions (most notably, the SEC in the US) view such offerings as amounting to unlawful trading in ‘derivatives’ – SEBI could take a similar view, although Indian securities laws also allow for an interpretation to the contrary.
Legal nuances aside, SEBI has made its policy objections to such platforms well known. SEBI is concerned that these apps do not afford users the protections ordinarily available to investors in the securities market. There are also apprehensions that ‘gamifying’ the trading experience could seed high-risk behaviours among users, which may spill-over into trading behaviours in the real world.
In 2016, SEBI proposed a ban on such stock market based simulation games, although it subsequently stopped short of that and instead directed its registered stock-brokers to refrain from being associated with such games/platforms. SEBI’s new circular, however, would mean an effective ban on such platforms by curtailing their access to live market data feed.
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