The Securities and Exchange Board of India (SEBI) has rolled out stringent regulations governing the dissemination of real-time stock price data to third parties, marking a significant move to curb the misuse of this sensitive information. These measures, set to take effect 30 days from issuance, are expected to have far-reaching impacts on market participants, particularly virtual trading platforms and stock-market trainers, fundamentally altering their operational landscapes.
Key Provisions Of SEBI’s new norms
SEBI’s new norms are comprehensive, addressing several key areas of concern:
- Restrictions on Real-Time Data Sharing:
MIIs and registered market intermediaries are prohibited from sharing real-time market data with third parties, unless it is crucial for regulatory compliance or the orderly functioning of the securities market. For educational purposes, data sharing is permitted but must incorporate a delay of at least one day.
- Mandatory Written Agreements:
Entities planning to share real-time pricing data must have formal agreements specifying the intended use of the data. These agreements must be reviewed annually by the boards of MIIs or intermediaries to ensure compliance.
- Due Diligence and Anti-Misuse Measures:
MIIs and intermediaries are required to perform rigorous due diligence when sharing data and include provisions in agreements to prevent misuse. They must take all necessary precautions to stop entities from misusing price data, implementing regular audits and monitoring procedures.
- Ban on Monetary Incentives:
The sharing of market price data for educational purposes must not involve monetary incentives, particularly those based on the performance of virtual stock portfolios.
- Impact on Virtual Platforms:
The new rules will end activities such as trading competitions, demo trading, and Contracts for Difference (CFDs), which heavily rely on real-time data.
These regulations could severely disrupt stock-market trainers who have built their business models around real-time data. Many trainers attract clients by promising live-market training sessions, which will now face significant restrictions due to the mandated one-day data delay.
Anand Kankani, a Practising Company Secretary, commented, “The law needs to be adhered to as what is not prescribed is also proscribed. 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. Therefore, using live market data—even if it is through your personal account—for training can be seen as a violation of the norms.”
Despite the clear intent of SEBI’s guidelines, some legal ambiguities remain. Manendra Singh, a partner at Economic Laws Practice, explained, “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. The provisions under the circular could be interpreted to prohibit a person from using his/her account in such a manner, 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.”
SEBI’s regulations also target platforms offering CFDs, demo trading, and similar services. Nithin Kamath, founder of Zerodha and a member of SEBI’s Secondary Market Advisory Committee (SMAC), stated, “The circular essentially means that it ends all platforms offering trading competition, demo trading, CFDs, and more.”
CFDs allow users to speculate on price movements without owning the underlying assets, a practice that has gained popularity but operates outside regulatory oversight. This crackdown aims to eliminate high-risk speculative activities that can mislead inexperienced investors.
SEBI’s new regulations underscore a commitment to enhancing market integrity and protecting retail investors. By enforcing strict agreements, conducting due diligence, and incorporating anti-misuse provisions, SEBI aims to create a more transparent and fair trading environment.
SEBI highlighted, “MIIs or intermediaries must ensure that real-time price data is not shared with any third party unless necessary for the proper functioning of the securities market or regulatory compliance. MIIs and intermediaries must conduct due diligence when sharing data and include provisions in agreements to prevent misuse. Additionally, they must take all necessary precautions to stop businesses from abusing price data.”
The guidelines reflect SEBI’s proactive stance in regulating the use of real-time data across the financial ecosystem. This move not only protects retail investors but also ensures that market practices remain ethical and transparent. The prohibition of monetary incentives linked to virtual stock portfolios addresses the risk of speculative trading activities that can mislead less-informed participants.
SEBI’s new rules on the sharing of real-time price data are a significant step towards ensuring market integrity and protecting investors. While these regulations present challenges for stock-market trainers and virtual trading platforms, they are essential for fostering a transparent and fair trading environment. The industry must now adapt to these changes, prioritizing compliance and ethical use of market data.
For more detailed insights and implications of SEBI’s circular, stakeholders and interested parties are encouraged to review the official documentation provided by the regulator.
