The Securities and Exchange Board of India (Sebi) on June 27, 2024 laid down guidelines for its regulated entities, at its board meeting, effectively prohibiting brokers from dealing with finfluencers.
Under the Sebi norms, regulated entities and their agents are restricted from having any association directly or indirectly with any other person who provides advice or recommendation or makes any implicit or explicit claim of return or performance of any securities.
“The regulated entities shall not have any association, such as transactions involving money, client referral, or interaction of information technology systems or any other association” with entities making claims of above-mentioned nature, Sebi said.
However, the above restriction will not apply to Sebi-regulated entities or its agents for their association with persons who are exclusively engaged in investor education and do not provide or make claims on return or performance of securities.
Further, the restriction will not apply if the association is through a specified digital platform, which has a mechanism to take preventive or curative action to ensure that such a platform is not used by any person for making claims. Further, Sebi has placed the onus on the person regulated by the board to ensure that the person with whom it or its agent are associated do not indulge in such prohibited activities.
Background: Finfluencers Operating Pump And Dump Scheme
Sebi’s crackdown on influencers started in the backdrop of increasing instances of investors getting manipulated into pump and dump schemes of influencers.
Pump and dump scheme starts with a market manipulator acquiring significant amount of penny stocks. Then the price of these stocks are pumped up through aggressive promotion on social media by influencers. Once there is a high demand for these stocks, they are dumped on unsuspecting investors, who eventually bear the loss once the stock price dips to its accurate level.
On June 1, 2024 Sebi had imposed a penalty of Rs 7.75 crore on 11 individuals for running a pump and dump scheme in the scrips of Svarnim Trade Udyog through Telegram channels. Last year, the scrips of two Delhi-based broadcasting companies were also in news, as their prices were also pumped up to dump on unsuspecting investors.
Other Decisions At Sebi Board Meeting
Sebi also decided to streamline the process for public issuance of debt securities to provide more ease of doing business, flexibility and faster access of funds to issuers.
Sebi cut down the period for seeking public comments on the draft offer documents from seven working days to one day for issuers whose specified securities are already listed. The period for other issuers to seek comments would be five days.
Also, the minimum subscription period has been cut from three to two working days, and the listing timeline has been reduced from T+6 to T+3 working days. The latter proposal will be optional for one year and mandatory thereafter, Sebi said in a release.
