Sebi, DoT to turn the heat on fake stock tips

Regulator's surveillance team is taking help of cyber experts to trace the origin of text messages

Investors might soon get relief from pesky SMSes with fake stock tips, as the Securities and Exchange Board of India (Sebi) and the Department of Telecommunications (DoT) are planning to take stern action against brokers sending these messages.
 
According to sources, the capital markets regulator has identified brokers who could be using third-party bulk messaging service providers to circulate the unauthoriesed investment tips.
 
With markets going through a buoyant phase this year, the intensity of such messages has increased. These messages lure gullible investors into buying shares of little-known companies. This helps create liquidity, thereby providing an exit to share operators who take positions when the price is low.

 

Sebi’s move comes after several top brokerage houses like Motilal Oswal, India Infoline Financial Services, Angel Broking and HDFC Securities reportedly complained to the regulator, that their names were being misused by dubious operators.
Sources said Sebi had shared its preliminary inquiry report and observations with the DoT in a meeting held last week. Sebi’s senior officials deliberated the issue with the telecom department and the Telecom Regulatory Authority of India (Trai) and requested them to put some kind of “filters” to nab the offenders.
 
The DoT is learnt to have asked the markets regulator to furnish the list of brokerages whose names have been used in the messages. Meanwhile, Sebi is working on a couple of more options.

 
“As a preemptive measure, Sebi could ask brokerages to put out an advisory, apart from regular disclaimers. Second, with the help of the cybercrime investigation cell of Mumbai Police, the regulator is trying to detect the origin of the such SMSes,” said a Sebi official.
 
Further, Sebi’s surveillance team is calling up on the mobile numbers referred by the messenger along with trading tips. It is also taking the help of cyber experts to trace the origin of the text messages.
 
“The best way to get rid of this menace is to go after the people who are sending these SMSes. Also, action can be taken against operators who are transacting in stocks that are being peddled through these SMSes,” said Nithin Kamath, chief executive officer, Zerodha

 
The other challenge before the telecom regulator is that to distinguish between the purposes of sending bulk messages. According to the rule, an entity can send up to 100 SMSes a day from a prepaid connection and 3,000 from a post-paid SIM. To send bulk SMSes, telemarketers have to register themselves with Trai. However, there is no mechanism to trace these bulk messages if it’s for illegal activities.
 
A typical message that phone subscribers receive is to buy shares of a penny stock, giving details like the entry price, stop loss, trade quantity, the target price and the holding period. Some of these stock operators also provide a price trigger. For instance, the company would be receiving a major order from a large company or it being an acquisition target of a well-known firm.

 
Experts say investors who use social media for stock-specific information should not be swayed by such tips as these are being sent to trap investors. “Small investors should be doubly careful when investing in equities. Investing on the basis of tips and momentum is risky,” said Prithvi Haldea, chairman and managing director of Prime Database.
 
In the past, Sebi, too, has constantly warned investors against falling for such illicit messages. However, in this case the stock tips claim to be coming from renowned brokers and appear authentic with some minor changes in the brokerage’s name. Last year, Sebi had floated a consultation paper to curb unauthorised investment tips through social media. Sebi is yet to pass the final guidelines on it.