SEBI Tightens Norms on Financial Influencers and Eases Delisting Rules

SEBI Tightens Norms on Financial Influencers and Eases Delisting Rules

Sub: Economy

Sec: Capital market

Overview: India’s markets regulator, the Securities and Exchange Board of India (SEBI), has introduced new regulations to address the rising influence of unregulated financial influencers who advise on stocks and investments through social media platforms like YouTube and Instagram.

Key Points:

• Ban on Unregulated Financial Influencers: SEBI has mandated brokers and mutual funds to stop using the services of unregulated financial influencers for marketing and advertising campaigns.
• Exemption for Investor Education: Financial influencers engaged in genuine investor education are exempt from the new restrictions.
• Reason for the Regulation: The decision aims to tackle issues related to certain individuals and unregulated entities making inappropriate claims and inducing investors to deal in securities.

Context:

• The popularity of financial influencers has surged with the growth of the Indian stock market.
• The number of trading accounts in India has increased from 36 million in April 2019 to 154 million in April 2023.

Changes to Derivative Trading

New Criteria for Derivative-Linked Stocks:

• SEBI has introduced new criteria to determine which stocks can be linked to derivative products, such as futures and options.
• The total number of stocks eligible for derivative trading will increase slightly.

Easing Delisting Rules

Revised Delisting Mechanism:

1. Fixed Price Offers: Companies can now offer shareholders fixed prices for their shares as an alternative mechanism to delist from stock exchanges.
2. Current Method: Previously, delisting was carried out through a reverse book-building process.

These changes are expected to simplify the process for companies wishing to exit stock exchanges. 

SEBI’s Focus:

• SEBI continues to enhance market integrity and investor protection through regulatory measures.
• The new norms for financial influencers and the eased delisting rules are part of SEBI’s broader efforts to ensure fair practices and market efficiency.

Who are Finfluencers?

Individuals with public social media platforms offering advice and sharing personal experiences about money and investment in stocks.

Content Coverage:

• Budgeting
• Investing
• Property buying
• Cryptocurrency advice
• Financial trend tracking

Need for Regulations:

• Unregistered Advisors:
  • The rise in the number of unregistered investment advisors giving unsolicited stock tips on social media.
• Market Manipulation:
  • Certain companies use social media platforms to inflate their share prices through finfluencers.
• Fraud Risks:
  • Both listed and non-listed companies are vulnerable to fraud, especially with the increase in digital data thefts and technological risks.
• Financial and Ethical Impact:
  • Diversion of funds/assets can lead to shareholder wealth erosion, financial crises, ethical dilemmas, and reputational risks.