SEBI Issues Warning On Transactions Of Unlisted Securities Through Electronic Platforms

The Securities and Exchange Board of India (SEBI) has cautioned investors about conducting transactions involving securities of unlisted public limited companies on unauthorized online platforms and websites. The regulator further pointed out that such transactions are violative of the provisions of the Securities Contracts (Regulation) Act, 1956, and the SEBI Act, 1992, both of which are enacted for the protection of investors' interests in the securities market.

According to SEBI, several electronic platforms have been identified facilitating the trading of unlisted securities without appropriate authorization, exposing investors to significant risk.

"Investors are strongly advised against engaging in transactions or sharing sensitive personal information on such platforms, as they are neither recognized nor authorized by SEBI and lack proper regulatory oversight," the regulator stated.

The latest advisory follows SEBI’s earlier warnings against unauthorized platforms, including those offering virtual trading, paper trading, fantasy games, and unlisted debt securities. In line with this, SEBI issued a 2016 circular, cautioning the public about the risks associated with unregistered platforms involved in trading unlisted securities. The circular reiterated that such platforms violate the Securities Contracts (Regulation) Act, 1956, and the SEBI Act, 1992, emphasizing the need for regulatory oversight to protect investors from fraud.

SEBI stressed that only recognized stock exchanges have the legal authority to facilitate the buying, selling, and fundraising of securities for both listed and "to-be-listed" companies. A list of these exchanges can be found on SEBI's official website.

It has also clarified that investors, who indulge in such unauthorized platforms, would lose out on critical investor protection. Those protections include the jurisdiction of SEBI, grievance redressal mechanisms by exchanges, and dispute resolution services offered by bodies that are authorized to do so like Smart ODR.

Also, SEBI issued a warning last week on December 5 regarding the risks of the unregistered platforms selling unlisted debt securities. It referred to its order of November 18, by which it had urgently restrained three unregistered platforms: altGraaf, Tap Invest, and Stable Investments, from selling unlisted securities; the statement emphasized SEBI's commitment to protecting investors from significant risks.