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WhatsApp refuses to share user info for the HDFC Bank earnings leak investigation


WhatsApp has refused to share user-specific information, in relation to multiple instances of HDFC Bank’s quarterly financial reports being circulated on the messaging app prior to official announcements from the bank, citing its privacy policy, reports Business Standard. Earlier, the Securities and Exchange Board of India (SEBI) had directed HDFC Bank to strengthen its system to prevent leakages of price-sensitive information, months after at least two instances of the bank’s quarterly financial results being circulated on WhatsApp were reported. The regulator had also asked HDFC to conduct an internal inquiry of the leakages and take action against the culprits.

Following this, SEBI reportedly wrote to the Facebook-owned messaging app seeking information on the origin of messages containing unpublished price-sensitive information of companies, which is crucial for investigation.

Last month, SEBI had extended its investigation of such WhatsApp leaks to 40 companies, including Jubilant Life Sciences, Coal India, Glenmark Pharmaceuticals, Century Textiles Industries, CESC, Cipla, LIC Housing Finance, Yes Bank, Zee Media Corporation, Maruti Suzuki India, JSW Steel, and Sun Pharmaceutical. SEBI had initially launched the probe in November 2017, and last month reportedly seized laptops of 34 dealers and brokerage analysts, in an attempt to determine the origin of the leaks.

Note that WhatsApp is not mandated to share information with SEBI under current rules, and as we had pointed out earlier, the regulator may have difficultly building a case.

  • Firstly, the messages on WhatsApp are end-to-end encrypted, and even parent company Facebook would be unable to read these messages.
  • It would also be very difficult to pin the origin of the messages and the person who started to circulate them on WhatsApp.
  • And since the results which were circulated were not exact, even if SEBI caught the person leaking the information they would have a sort of get-out-of-jail-free card.

SEBI guidelines on insider trading

Sharing of sensitive information can potentially influence the market and SEBI has cited its 2015 regulations on insider trading in the directive, saying circulation of such information is prohibited. 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.

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. In the same year, SEBI also said 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).

Role of automated tools in investment advisory

Readers might remember that in SEBI’s consultation paper on investment advisory services, the regulator had also discussed at length the role of automated tools (read bots) in the investment advisory segment. It observed that while “there is no express prohibition for use of automated advice tools”, it provided registered investment advisers certain guidelines, including “disclosure to the clients in relation to how the tool works and its limitations of the outputs it generates” and “investment adviser using the tool shall be held responsible for the advice.”

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