By Vikrant Rana, Rupin Chopra and Shantam Sharma
In the dynamic and ever-evolving world of stock trading, fantasy stock gaming apps have emerged as an innovative form of engagement for market enthusiasts. These platforms allow users to build virtual portfolios, simulate trades, and compete against each other based on real-time stock market data. Unlike traditional trading, these apps do not involve the actual buying or selling of shares but instead mirror the price fluctuations of listed stocks. While this concept offers a unique way for users to apply their market knowledge, it has raised regulatory concerns, particularly regarding the sharing of real-time stock price data with third parties.
The Securities and Exchange Board of India (SEBI), being the regulatory authority for the Indian securities market, has recognized the potential misuse of such real-time data. To address this, SEBI introduced a set of norms[1] designed to regulate the sharing of real-time price data to third-party platforms, such as fantasy stock gaming apps. This article provides an overview of SEBI’s regulatory framework and explores its implications for the market participants and fantasy gaming platforms.
Understanding Fantasy Stock Gaming Apps
Fantasy stock gaming apps operate by allowing users to create virtual portfolios that simulate real-time trading in the stock market. The user experience on these platforms revolves around stock market trends, with users betting on the performance of individual stocks based on real-time price movements. Although these apps do not facilitate actual trading, the performance of the virtual portfolios is closely tied to real stock prices, creating an engaging simulation for users.
One notable feature of these apps is the introduction of competitions or challenges where users can win monetary rewards based on the performance of their virtual stock portfolios. This raises concerns about the impact of real-time stock price data being used for such non-traditional market activities. SEBI’s norms seek to address these concerns by tightening the regulations surrounding the sharing of real-time price data with third parties, including fantasy gaming platforms.
The Regulatory Concerns
The crux of SEBI’s concerns stems from the unauthorized sharing and potential misuse of real-time price data by platforms offering fantasy stock trading services. Real-time price data, which is crucial for maintaining the integrity of stock exchanges, should only be shared for legitimate purposes that contribute to the orderly functioning of the securities market. When real-time data is shared with third parties like gaming platforms, there is a risk that such information could be misused or exploited for non-market-related purposes, such as in fantasy competitions that offer monetary incentives.
SEBI’s Secondary Market Advisory Committee (SMAC) introduced a regulatory framework aimed at ensuring that market infrastructure institutions (MIIs) and market intermediaries exercise stringent controls over the sharing of real-time stock data.
SEBI’s Norms for Sharing Real-Time Price Data
Based on the recommendations of the SMAC, SEBI has outlined several key norms that govern the sharing of real-time price data with third-party platforms. These norms, which have been laid out in a circular, aim to curb the unauthorized use of price data while maintaining the integrity of the securities market.
- Restricted Sharing of Real-Time Price Data
SEBI has mandated that stock exchanges, clearing corporations, depositories, and other registered market intermediaries (collectively referred to as Market Infrastructure Institutions, or MIIs) are prohibited from sharing real-time price data with third parties, except in cases where such sharing is required for the orderly functioning of the securities market or to fulfill regulatory requirements. This means that fantasy gaming platforms that rely on real-time stock prices for their games will now face stricter scrutiny regarding their access to this data. - Agreements for Data Sharing
If an MII or market intermediary intends to share real-time price data with a third party, such sharing must be governed by a formal agreement. This agreement must clearly outline the activities for which the data will be used, and the rationale for why the data sharing is essential for the orderly functioning of the securities market. Furthermore, the list of entities and activities involved in data sharing must be reviewed by the Board of the MII or intermediary at least once a year. This provision ensures that only legitimate entities with a valid need for real-time data will have access to it, preventing misuse by unauthorized parties. - Data Sharing for Investor Education and Awareness
SEBI recognizes the importance of investor education and market awareness. To support these objectives, the regulator allows MIIs and market intermediaries to share real-time price data for educational purposes, provided that the data is shared with a one-day time lag and no monetary incentives are offered to participants. This measure strikes a balance between promoting market education and preventing the misuse of sensitive, real-time data for financial gain. - Due Diligence and Prevention of Misuse
MIIs and market intermediaries are required to conduct thorough due diligence before entering into any agreement for sharing real-time price data. The agreements must contain provisions to prevent misuse of the data by the third-party entity. Additionally, MIIs and intermediaries must take all necessary steps to ensure that the data is not used for unauthorized purposes, which includes implementing safeguards and monitoring mechanisms to track the usage of the shared data.
Implications for Fantasy Stock Gaming Platforms
SEBI’s new regulations represent a significant shift in how real-time stock data can be accessed and used by fantasy stock gaming platforms. These platforms, which previously enjoyed relatively free access to real-time stock price data, will now be subject to stricter regulations and oversight. Platforms that rely on real-time data for their operations will need to ensure that they have the necessary agreements in place with MIIs or intermediaries, clearly justifying their need for the data.
Moreover, platforms that offer monetary incentives based on virtual portfolio performance may need to reconsider their business models. The restriction on sharing real-time data for such purposes, combined with SEBI’s focus on preventing misuse, suggests that platforms will have to pivot towards more education-based or non-monetary incentive models if they wish to continue using real-time data.
Compliance Timeline and Enforcement
MIIs, market intermediaries, and third-party platforms are required to take the necessary steps to comply with the new regulations. This includes amending relevant bye-laws, rules, and regulations, as well as disseminating information about the new requirements to market participants, including investors.
In addition to these compliance measures, MIIs and intermediaries are encouraged to develop systems and controls that ensure real-time price data is only shared for legitimate purposes. Failure to comply with these regulations could result in penalties and sanctions, as SEBI seeks to protect the interests of investors and maintain the integrity of the securities market.
Conclusion
SEBI’s norms on the sharing of real-time price data reflect the regulator’s commitment to safeguarding the securities market from misuse. Fantasy stock gaming platforms, while innovative, must operate within a regulatory framework that prioritizes transparency and the orderly functioning of the market. By introducing stringent guidelines for the sharing of real-time price data, SEBI aims to strike a balance between promoting market education and preventing the exploitation of sensitive market information for non-regulatory purposes. As the stock gaming industry continues to evolve, compliance with SEBI’s norms will be crucial for platforms that wish to maintain access to real-time data and operate in the Indian securities market.
[1] Available at: https://www.sebi.gov.in/legal/circulars/may-2024/norms-for-sharing-of-real-time-price-data-to-third-parties_83572.html