With the recent
IPL Fever in its full swing, fantasy gaming companies are making merry.
But what about the fantasy trading platforms for stock
markets? They have been in existence since quite a few years now. What are the
regulations surrounding the same and what lies forward for them?
All of this, we
shall explore in this blog.
Indians and Stock Markets
The penetration of Retail Individual Investors (RII’s) have
been traditionally low. However Covid has given a much needed impetus to the market
penetration thanks to complete digitization of account opening and operating
processes. Currently the total number of Demat accounts in India has crossed
the 11 Crore from about 3 crore in pre covid stage.
With the demographic dividend that India possess, India is
surely to add on to this feat.
However before entering the ocean, one should first learn to
swim. The same applies to the stock markets as well. The first experience of an
investor is extremely important since that will potentially decide whether he/she
will continue in the pursuit further or not.
What are
Fantasy Stock Market Trading Platforms/Games/Leagues/Competitions and do they
help the novice investors?
Fantasy Stock
Trading Platforms are more of a virtual gaming platform for stock markets.
Anybody can signup as a player and play with virtual cash. They can then create
a model portfolio. The performance of their model portfolio shall mirror the
actual performance of the stock market.
This shall
basically help in learning the tricks of the trades before actually deep diving
in to the actual markets.
Pro’s
Good to learn the
basics of the markets
Since actual
money is not involved, there is no risk of losing money.
Con’s
People get bored
quickly, since there is no money involved.
There is very
little emotional bias, which is the biggest hindrance in creating return for
Retail Individual Investors.
What are Popular
Models for Fantasy Stock Market Platforms?
There are a couple
of broad models here:
No Fees
Model
Step 1: The
platform allows for login based on email id/Mobile Number.
Step 2: They then
provide a virtual cash (Generally One Crore i.e. The dream figure for most
Indians).
Step 3: Users can
create a virtual portfolio of their choice. The same shall be mirrored based on
the existing price of the stock market.
This Model typically
earns through cross selling different products/advertisements.
Fees
Model
Step 1: After Sign
up, Players have to pay entry Fee to enter a contest Say Rs. 10(Similar to Dream
11)
Step 2: They then
provide a virtual cash.
Step 3: Users can
create a virtual portfolio of their choice. The same shall be mirrored based on
the existing price of the stock market.
Step 4: Based on
the performance of all the participants in the contest, the top winners gets a
price from the pool of entry fees paid by the participants. The organizer keeps
their cut on the same and earn profit.
What is Regulatory
Position?
SEBI has clearly specified the following:
“No person shall organize or offer any
scheme/competition/game/ league on securities or related to securities market.”
Source: Refer Point 4.6 - https://www.sebi.gov.in/sebi_data/meetingfiles/mar-2020/1583318232255_1.pdf
Further they have also shared a press release on the subject
matter which states that the investors participating on such platforms shall be
devoid of the following major benefits:
- Benefits of investor protection under
SEBI/ Exchange(s) Jurisdiction
- Exchange dispute resolution mechanism
- Investor
grievance redressal mechanism administered by Exchange(s)
SEBI
Press Release: https://www.sebi.gov.in/media/press-releases/aug-2016/sebi-cautions-investors_33094.html
In short, the
entire industry has been working in grey area.
A lot of apps are running under the pretext of being an educational platform. However, they are making money via betting, gambling, predictions, creating pools, or similar different methods.
NSE’s Circular
Dated 20/04/2023
NSE has recently come up
with the circular on the subject matter which could really act as a death knell
for the Industry which strives on data feed from the exchange.
“It has come to notice of
the Exchange, that some market participants are using the Exchange data for
gaming and virtual trading purposes which goes against the principles of fair
and transparent trading. All Trading Members are hereby advised that the use of
NSE data is only for legitimate trading purposes by their clients and not for
the purpose of gaming and virtual trading.”
Source: https://archives.nseindia.com/content/circulars/COMP56426.pdf
What is
the stand of International Regulators for Similar Entities?
USA
When a similar
situation arose in USA, the Securities and Exchange Commission (SEC) issued a
Cease and Desist Order on a popular website called “Stock Battle”.
Australia
Australia follows
more of a licensing approach. Australian
Securities and Investments Commission
(ASIC) grants licenses to such companies generally when they do not
offer any rewards linked to the same.
Are there any Policy Concerns by allowing such entities to fuction?
There could be a policy concern here. Such internet-based platforms have the potential
to sideline the regulated market
and offer some alternatives to investors and market analysts Eg. Internet Based
Dabba Trading. Regulated trading
and investing serves an underlying economic purpose in capital markets, but
that may not be the case with these virtual trading games.
If they become a widespread phenomenon, it can
even create a parallel, unregulated
securities market.
An element of trust and prudence that is
available in the regulated market may be
lacking in operation of gaming websites.
My
experience of the same and My Take on the matter!
Honestly, I have started my amateur career in the stock
markets by playing one of the moneycontrol gaming platform with Virtual Rs. 1
Crore cash. It did interest me for a some time, than I left the same and started
with actual cash of Rs. 10,000 in the markets borrowed from my father. I
lost it all in a matter of few days.
I do feel that markets have become increasingly complicated
in terms of the laws while easy to use in terms of the user friendly Mobile
apps.
One need to understand what are the rules of the game before
entering into the ring.
Virtual Gaming could be one such way through which simulates the
actual market conditions. While this may not provide the emotional high or low,
it does provide a good start.
However private entities profiteering on the subject matter
are also a matter of concern.
India is a software super power. I believe SEBI/Stock
Exchanges could create one such platform which operates on all the rules laid
down by the regulator while also providing the novice investor to learn the
nitty gritties of the stock markets.
Nice
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