The Securities and Exchange Board of India (‘SEBI’) has recently issued a circular[i] advising investors against participating in unauthorised trading and gaming platforms. The circular highlights potential risks such as data breaches, financial losses, and additional expenses. SEBI has urged investors to avoid unauthorised platforms, which pose significant dangers. If investors engage with such platforms, they must do so at their own risk, as SEBI has strongly recommended against such actions.
Investors deciding to proceed with trading on such unregulated platforms should be aware that they will not be entitled to the following protections:
A. The benefits of investor protection under SEBI/Exchange(s) jurisdiction, including the SCORES system.
B. Access to the investor grievance redressal mechanism administered by Exchange(s) or the online dispute resolution mechanism managed by Exchanges/Depositories (smartodr.in).
The top regulator has emphasised that investors should only transact with registered and authorised intermediaries.
Previously, SEBI issued a similar advisory in 2016, warning investors of the risks associated with specific activities and platforms within the securities markets.
The focal points of the advisory are outlined below:
1. SEBI emphasised that certain entities promote leagues, schemes, or competitions associated with the securities markets, frequently involving the distribution of prizes that are neither approved nor endorsed by SEBI or any exchanges recognised by SEBI. Participation in these schemes, including sharing confidential trading information, is solely at the investors’ own risk. Investors should be aware that in the event of any disputes or issues arising from these schemes, they will not have access to:
Investor protection benefits under SEBI or the exchange jurisdiction.
Dispute resolution mechanisms offered by recognised exchanges.
Investor grievance redressal systems are managed by exchanges.
SEBI strongly recommends that investors refrain from engaging with these unauthorised schemes, which are often promoted by third-party entities, stockbrokers, or affiliates.
2. SEBI identified specific electronic platforms that facilitate fundraising activities through websites and other digital channels that mimic stock exchange platforms that are unauthorised or recognised. Many of these platforms purport to provide investment opportunities through private placements but operate in violation of the Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the Companies Act, 2013. SEBI reminded investors that only recognised stock exchanges are permitted to list and trade equity and other securities in accordance with the law. The investors were advised to avoid transactions on these unauthorised platforms, as such activities violate applicable securities laws. A list of SEBI-recognised stock exchanges can be found on SEBI’s official website (www.sebi.gov.in).
3. SEBI issued a warning to the public regarding the risks associated with trading in the securities markets based on advice from unregistered investment advisers or research analysts. Such unsolicited recommendations, frequently disseminated via SMS, public websites, or social media, should be disregarded. Investors are encouraged to verify the registration status of any individual or entity providing investment advisory or research services by checking SEBI’s website prior to any engagement. SEBI stressed the importance of interacting solely with registered entities whose information is accessible on its official platform.
Conclusion
In summary, SEBI emphasised the necessity for investors to remain vigilant, encouraging transactions exclusively through registered entities while steering clear of the unauthorised platforms that pose significant financial and legal dangers. Investors have been encouraged to cross-check with the official SEBI website before engaging in any trading activities through unverified links or advertisements. Following these recommendations is crucial as transacting through such unauthorised platforms will strip investors of the protective cover provided by the SEBI.
End Note
[i] Press release no. 27/2024, dated 04-11-2024.
Authored by Vanshika, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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