SEBI (Securities and Exchange Board of India) board meeting on June 27 decided upon new norms that prohibit regulated entities like brokers and mutual funds from dealing with any person not permitted by the board who gives advice or recommendations regarding securities. The new rules have been implemented considering the potentially biased and misleading information from the ‘finfluencers’.
The norms restrict the regulated bodies from making monetary transactions, client referral, information technology system-based interaction or any such linkage with unregulated persons or institutions. The entities regulated by SEBI will have to ensure that their agents do not engage in the enlisted activities.
The restrictions do not include the associations that involve an entity regulated by the board with persons engaged in investor education instead of direct or indirect advice with guaranteed return. Digital platforms ensuring that the platform is not used by any person unauthorised by SEBI to provide recommendations with claims of return or performances, would also not fall under the restrictions.
YouTube, TikTok and Instagram influencers have become popular among India’s retail investors in recent times. These so-called market experts often run on commission-basis and use their influence to mislead and take advantage of a huge portion of the country with a financial literacy rate of just 27%.
Additionally, SEBI chairperson Madhabi Puri Buch highlighted the new norms for linking stocks with derivative products such as futures and options, which will increase the count of shares eligible for derivative trading. The companies are now allowed to offer fixed share price mechanisms to their shareholders with a compulsory price set 15% above the floor price. This implies a simplification of making an exit from the stock exchange.
To create a streamlined delisting framework for investments and holding companies (IHCs), a fixed price has also been set to delist frequently traded stocks. These norms remove financial penalties for managing directors and chief technical officers post a technical failure, significantly impacting market infrastructure institutions (MIIS) and exchanges.
