Abstract
Securities and Exchange Board of India (“SEBI”) recent guidelines, issued on May 24, 2024, restrict the real-time dissemination of price data to third-party platforms in India’s securities market. Aimed at curbing misuse and ensuring market stability, these measures require stringent compliance from market intermediaries and Market Infrastructure Institutions (“MIIs”). The regulations balance innovation in financial technology with investor protection, mandating legal agreements and annual assessments for data sharing. By permitting delayed public access to price information for educational purposes, SEBI seeks to enhance transparency while deterring speculative activities. This regulatory framework underscores SEBI’s commitment to fostering a fair and secure securities market environment.
Introduction
The Indian market regulator, SEBI, came up with new guidelines on 24 May, 2024, regarding the provision of real time price data to third party. This action has been occasioned by increase in use of such data in online gaming, trading in virtual derivatives and fantasy games. This circular is aimed at discouraging the misuse and improper utilizations of real time price information. Also, the proposal made by SEBI is beneficial to increase the relevance and credibility of information in the market, which benefits investors and preserves the principles of market fairness. The guidelines also require compliance and reporting of such data by entities providing such data, and enhance the regulatory structure.
Background and Context
In the recent past, the business world has been faced with a massive revolution especially in online trading systems. These are various forms of online gaming applications, websites, digital services, which have exploited the existing demand of the fantasy games and real time stock trading of shares from the listed companies. These platforms replicate the experience of the stock market trading but in a virtual sense thus allowing people to trade in stocks without losing real money. They can keep real-time virtual stock portfolios, where participants make their choices based on the prices of real companies’ shares. These platforms are even more appealing because they offer the possibility of making money proportional to the results of these virtual portfolios, thus stimulating and motivating the users. Nevertheless, this emerging industry has also highlighted several issues, especially about Real-Time Price Information. The way these fake live trading platforms incorporate actual real market data into them gives rise to problems with regard to data privacy, market manipulation, and ethics of such actions.
The Secondary Market Advisory Committee (“SMAC”) of SEBI also deliberated on the issues and consequences of free flow of real-time price data on such sites. Understanding the necessity of the improvement of the legal framework, the SMAC developed several recommendations for the measures to strengthen the securities market and the regulation of relations connected with its functioning with the purpose of protecting investors’ rights. This situation resulted in the release of a detailed circular giving new standards and policies on virtual trading services. The measures have been put in place to ensure that real-time market data is used in proper manner without being misused or manipulated. By implementing these regulations, SEBI aims to strike a balance between fostering innovation in the financial technology realm and maintaining the stability and fairness of the securities market.
Key Provisions of the Circular
The mandate of SEBI requires that all MIIs including the stock exchanges, the clearing corporations, the depositories, and the registered market intermediaries cannot furnish real-time price data to any third party such as online platforms. The only cases in which such data can be transmitted are those circumstances in which such data could be exchanged to better conduct the market in securities as to certain legal conditions must be fulfilled. This restriction proves the concern of SEBI in the market regulation and to avoid any leak of sensitive information which may affect the market or a party to gain unhealthy advantages.
To fully adhere to SEBI’s instructions, numerous market intermediaries and MIIs who in this case, engage in providing real-time price information to any party should ensure that it signs legal agreements with the recipient. Such agreements have to include the file containing the list of the activities for which the data will be used and the rationale for necessity of the data sharing to ensure the proper operation of the securities market. Furthermore, both the entities in the list and the planned activities shall undergo annual assessment by the Board of the MIIs or market intermediaries. Thus, the process of data sharing remains relevant and justified, strengthening the focus on transparency and accountability in the securities market.
In a bid to improve the level of investor knowledge and information disclosure, SEBI permits the public availability of the market price information with some restrictions. It means that such data can be communicated in the interest of education, given that it is done one day behind the actual event. Also, it is important to note that any kind of remuneration for the participants of these educational activities should be excluded. This provision has been made in a bid to balance the investors’ information accessibility to curb speculation. Hence, by making sure that the data provided is not real-time, SEBI tries to avoid problems that stem from speculative activities in financial markets while giving a green light to education-related projects.
SEBI has laid down certain norms wherein MIIs and market intermediaries are expected to exercise due diligence while disseminating the real time price data. The actual arrangements in place for the sharing of these data must contain some very specific and strict terms that would prevent the abuse of such data. In addition, MIIs and intermediaries are supposed to do everything possible to prevent any misuse of the data and apply best-effort protection to the data’s integrity. This requirement shows that SEBI is very much involved in the responsible use of shared data to prevent unfair or unstable securities market.
Implementation and Compliance
The measures that are provided in the circular will be implemented 30 days after the date of issue of the circular. These new standards must be implemented in all respects by the MIIs. This involves modifying their internal procedures and structures, altering their bylaws, rules, and regulations to reflect the stipulations of the Act, and making sure that these changes are disseminated to all the stakeholders, including the investors. For this purpose, MIIs are mandated to provide conspicuous information about these new provisions on their websites and this way ensure that all the stakeholders get acquainted with the provisions.
The legal basis for the release of this circular is enshrined in several pieces of legislation and regulations. It is based on section 11(1) SEBI Act, 1992 which gives legislative authority to SEBI to safeguard investors’ interests and to regulate and develop the securities market. More so, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, also has Regulation 51 that supplements the issue of such circulars. The circular also uses Section 26(3) of the Depositories Act, 1996, and Regulation 97 of the SEBI (Depositories and Participants) Regulations, 2018, as sources of its power. Altogether, these provisions are intended to provide a sound and strong legal basis for the regulation of securities market and protection of investors’ rights in a rapidly developing market environment.
Through such requirements, SEBI aims at improving the operations of the securities market through transparency, accountability, and efficiency. The application of these norms must be done at the right time to ensure that the market has not been compromised and investors are not exposed to risk. The information on this regard is disseminated through MIIs’ website so that all the participants in the market are aware and can adjust appropriately to the new set up. Not only does this kind of approach confirm investor trust but it also works for the benefit of the development of the financial markets in general.
Conclusion
The regulation of disclosure of real-time price data with third parties has been notified by SEBI which can be referred as a landmark development for the protection of securities market. Thus, by now allowing access to this important information only under very strict conditions, SEBI tries to minimize the dangers threatening the usage of this information and the possibility of unauthorized use of it. This measure has been taken to act as a preventive measure for enhancing the protection of investors and subsequently making the market more efficient and less chaotic.
In order to meet such new norms, the market participants and intermediaries must put into place and maintain very high standards of compliance. Such systems are critical to avoid any occurrences that may result in regulatory violations. Thus, the role of such systems of regulation cannot be overestimated in the context of the existing tendencies in the financial sphere. They are redundancy of preserving the market stability contributing to the creation of a safe environment for investors and their concerns. The continued dedication in ensuring these standards is maintained and it will go a long way in maintaining the integrity and efficiency of the securities market.
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Student, Lloyd law college, Greater Noida