Summary of this article
SEBI warns public against unregistered unlisted trading platforms.
Sharing sensitive data on unauthorised websites poses risks.
Unregulated investments lack standard regulatory grievance redressal.
The Securities and Exchange Board of India (Sebi) has cautioned investors regarding the use of electronic platforms and websites which facilitate the trade in unlisted securities of public limited companies.
In a release dated June 17, the market regulator shed light on the growing concerns around unauthorised digital platforms and websites, adding that certain electronic platforms and websites are actively facilitating transactions and trading in unlisted securities belonging to public limited companies.
“It has come to the notice of Sebi that certain electronic platforms and/or websites are facilitating transactions/trading in unlisted securities of public limited companies,” Sebi said.
Sebi Cautions Investors Against Sharing Sensitive Information
Sebi also cautioned the public against sharing sensitive personal details on such websites and platforms, including virtual trading platforms that offer virtual trading, paper trading, and money-related fantasy games. It also cautioned investors against investing using unregistered online platforms which offer unlisted debt securities.
The regulator highlighted that these platforms are neither authorised nor recognised by the regulatory board and thus investors should not share sensitive financial details on such websites. Instead, Sebi urged investors to only conduct trading activities on recognised stock exchanges which are authorised to provide a platform for fund raising and trading in securities.
“Investors are once again cautioned about the risks in conducting any transactions/trading on such electronic platforms or sharing any sensitive personal details on the same as these platforms are neither authorised nor recognised by Sebi,” Sebi said.
The regulator also nudged investors to verify the status of the trading entities through the Sebi website where all the formal details of all recognised stock exchanges are available.
Lack of Regulatory Remedies and Investor Protection
Addressing the risks involved in trading on such platforms, Sebi also mentioned the lack of regulatory remedies available to individuals who choose to trade on these unauthorised platforms. Sebi said that for any kind of disputes relating to an investor’s participation on such websites, none of the standard grievance redressal mechanisms will be available, and investors would also lose out on the benefits of protection that are normally guaranteed under the jurisdiction of Sebi.
Sebi further mentioned in the release that it has previously issued similar advisories to investors against conducting any transactions on unrecognised websites and platforms.
By reiterating the advisory, Sebi seeks to ensure that investors remain fully aware of the risks before they invest their money on such platforms or share sensitive personal details. The regulatory body has said that using recognised stock exchanges is the proper path for fund raising and trading in securities.
Sebi’s advisory comes at a time when participation in the unlisted market is witnessing a dramatic rise. In recent years, the increase in primary market activity vis-a-vis more and more companies listing their shares on the exchanges has led to investors increasingly seeking unlisted shares of major companies to buy stocks below the issue price and sell the stock later for profit once it successfully lists on the exchanges.
This trend of unlisted share market activity has been witnessed in the surge of trade in the National Stock Exchange’s (NSE) unlisted shares ahead of the company’s initial public offering (IPO).
Even though such investments can potentially provide investors early access to shares of IPO-bound companies, the total lack of regulatory oversight can expose buyers to financial risks and data privacy risks and leave them with no regulatory redressal mechanism.
