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SEBI Asks Brokerages To Log Or Block Employee Access To Message Boards, Blogs, Chat

(By Anupam Saxena and Nikhil Pahwa)

A little over a month after India’s Security markets regulator SEBI (Securities Exchange Board of India) cautioned investors about investing on the basis of SMS based tips, and more importantly, warned brokerage houses about their employees using blogs and forums to offer unsolicited tops, The Economic Times reports that SEBI may approch the TRAI to put a ban on unsolicited stock tips via SMS.  SEBI feels that the tips can misguide investors and can be used by brokers to manipulate prices of stocks. However, it’s not that the TRAI can do anything about the tips – it’s regulations on unsolicited SMS still haven’t been implemented.

On March 18th, SEBI had advised investors to take precautions about doing due diligence before investing on the basis of advice saying that ” where the advice is rendered or sought to be rendered by any person, by means of advertisements through SMSs, or the electronic or print media, whether pursuant to or in the absence of any contract or arrangement, it might be an attempt to influence market price and lure investors. Investors are therefore advised to take adequate care and carry out necessary due diligence before acting on the basis of such advice/communication.” It had emphasized on disclosures by the intermediaries or broking houses in line with its code of conduct.

In a circular issued on March 23rd 2011, SEBI had said that blogs, chat forums,  e-mails and messenger sites (IM)  were being used by brokers and other intermediaries to communicate unauthenticated news about companies and manipulate the markets. It has directed broking houses to institute a code of conduct, not circulate rumors and:

– Access to Blogs/Chat forums/Messenger sites etc. should either be restricted under supervision or access should not be allowed.
– Logs for any usage of such Blogs/Chat forums/Messenger sites (called by any nomenclature) shall be treated as records and the same should be maintained as specified by the respective Regulations which govern the concerned intermediary.
– Employees should be directed that any market related news received by them either in their official mail/personal mail/blog or in any other manner, should be forwarded only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. If an employee fails to do so, he/she shall be deemed to have violated the various provisions contained in SEBI Act/Rules/Regulations etc. and shall be liable for actions.

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This doesn’t augur well for forums where stock trades are discussed, including the Moneycontrol Message Board*. The ET report also stated that SEBI will soon start a software based monitoring of discussions on social media sites like twitter and facebook.

While we also feel that broking houses and individuals must issue disclosures, with company news, curbing their internet presence is no solution. Government bodies are obsessed with maintaining logs, what they fail to understand is that this practice is ineffective – a message that can be posted via the Internet through an office connection can also be posted via mobile. SEBI’s done the right thing by warning investors, but by asking brokerages to block access to discussions might end of preventing legitimate discussion.

And if investors choose to trust rumors, they’re taking a risk. It’s one thing to look into insider trading, or media houses or journalists manipulating stocks, but quite another to try and kill all speculation. If rumors and gossip can be exchanged on the floor of a stock exchange, or on the street, then why not online? Also, not everything that is one a message board or a blog is speculative in nature.

*Disclosure: Moneycontrol is an advertiser with MediaNama

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