SEBI Issues Warning Regarding Virtual Stock Games Utilising Real-Time Data

Nitin Konde, Varun Bhardwaj

Nov 6, 2024 — 3 min read

SEBI Warns on Virtual Stock Games Using Real-Time Data

Investors are being cautioned by the Securities and Exchange Board of India (SEBI) about unapproved virtual trading and gaming platforms that provide services and advice based on stock prices. SEBI underlined that these platforms breach important investor protection regulations and function without regulatory license.

"The Securities and Exchange Board of India has discovered that certain apps, web applications, and platforms are providing the public with virtual trading services, paper trading, or fantasy games based on stock price data of listed companies," stated SEBI in a circular released on 5 November 2024.

According to SEBI, these actions are against the Securities Contract (Regulation) Act of 1956 and the SEBI Act of 1992, which are legislation designed to safeguard investors. The warning is in connection to an earlier advice from SEBI on August 30, 2016, which warned against securities market leagues, schemes, and tournaments, some of which gave out prize money.

SEBI reaffirmed that only registered intermediaries should be used by investors to trade and make investments. SEBI has no jurisdiction over unapproved platforms. Furthermore, SEBI's procedures are unlikely to provide protection or grievance redress for any problems resulting from such unregistered schemes or platforms.

The circular further emphasised that investors who use unapproved platforms have no alternative. They would not have access to investor grievance procedures run by exchanges or the online dispute resolution tool, Smart ODR, and they will not be eligible for safeguards under SEBI's authority, such as SEBI's Complaints Redress System (SCORES).

Why SEBI is so Concerned?

The markets watchdog is worried that these operations resemble "dabba trading," an unlawful practice that uses unapproved channels, even though SEBI's most recent warning does not name specific organisations, according to a media report. The regulator limited the access for virtual stock games in May of this year by ordering depositories and stock exchanges to cease supplying real-time pricing data to third-party apps. This regulation, which specifically targeted apps that offer cash prizes or gamify real-time stock movements, attempted to prevent users from forming irrational expectations about the equities market or taking risks based on virtual accomplishments. According to the same media report, stock exchanges have also warned organisations that use information that was scraped from their websites or brokers' websites.

What is a Fantasy Stock Game Like?

Stock investing can be dangerous since prices might suddenly decline, resulting in possible losses as well as extra fees and taxes. On the other hand, fantasy stock game applications claim to be a safer substitute. For a nominal admission fee, users can forecast price movements by simulating stock trading using real stock data from exchanges such as the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Users could win cash prizes, luxury goods, or gold coins if their predictions come true. The admission fee, which is much less than the true costs of trading, is all that is lost if the user's prediction goes wrong.

These apps that use real-time data from regulated exchanges are disapproved by SEBI. According to SEBI, these platforms use market data to draw users, possibly leading them to mistakenly believe that virtual success is equivalent to actual trading prowess. In contrast to actual trading, these apps are unregulated and exempt from risk disclosure requirements.