The Securities and Exchange Board of India (SEBI) said that has launched a probe on the trading data after it was revealed that financial results were circulated in social media groups before exchanges were informed, reports the Economic Times. Last week, Reuters reported that financial results of major Indian companies were being circulated on WhatsApp before they were declared to the stock exchanges. Many of the WhatsApp groups’ postings were termed ‘heard on the street (HOS).’
With information being leaked before they are announced on WhatsApp, it could be considered a case of insider trading and SEBI has asked exchanges to check who traded in these stocks shortly before or after the results were announced. Dissemination of financial results is considered price-sensitive and should be submitted only to the stock exchanges. According to Indian law, the dissemination of price-sensitive information will attract a fine of Rs 25 crore and can be higher if the information was used to make a trade.
However, the Reuters report states that not all metrics shared were exactly the same as reported. For example, the Reuters report said that for this quarter, Dr. Reddy’s reported a loss of Rs 58 crore while the WhatsApp messages circulated showed a loss of Rs 50 crore.
However, in 2015, SEBI tightened rules on price sensitive information and said that unpublished information on financial results, dividends, and change in capital structure, among others, could lead to insider trading. It also added that it is not necessary for an individual to be in the company for insider trading.
SEBI clampdown on stock tips
Earlier this year, SEBI said that it would clamp down on fraudulent and unsolicited investment tips and offers made through SMSes, Whatsapp and other social media platforms and said it would coordinate with the Reserve Bank of India (RBI) and the Telecom Regulatory Authority of India (TRAI).
Last year, SEBI had released a consultation paper with the objective of specifying “uniform standards across all the intermediaries/persons engaged in providing investment advisory services irrespective of whether such activity is incidental to their primary activity or not and to address the gaps or overlaps in legal or regulatory standards.” More here.
This would be difficult for SEBI to investigate the issue for several reasons.
- The messages were circulated on WhatsApp which is end-to-end encrypted. As such, even parent company Facebook would be unable to read these messages. So approaching them would not give them results on who typed these messages or circulated them.
- It would be very difficult to pin the origin of the messages and the person who started to circulate them on WhatsApp.
- Meanwhile, the results which were posted were not exact, and therefore, even if SEBI caught the person leaking the information could say that it was based on research and tips they received. The onus would then be on SEBI to show that this information which was circulated was done with the intention of committing insider trading.