With capital markets seeking to attract new investors, regulator Sebi's proposal to ban competition or leagues related to stock trading could defeat this very purpose, experts say, adding that such initiatives are training ground for investments.
In a recent set of proposed regulations, the Securities and Exchange Board of India (Sebi) is planning a blanket ban on practice of offering schemes, competitions, games or leagues to protect investors from being misled.
Pointing out that various countries like the US and Australia have been holding market competitions for many years without major restrictions from their respective regulators, analysts feel Sebi should reconsider the move to ban stock market competitions/leagues as it is one of the alternatives to expand the investor base.
"The number of investors as a percentage of total population is very low (2 per cent) and among those who invest in the equity markets, the percentage allocation too is low. Thus, it is pertinent to find ways and means of improving participation," market expert Ambareesh Baliga told PTI.
According to Baliga, a certain amount of excitement is necessary to attract investors to the markets which can be provided by competitions or leagues.
"To draw a corollary, the number of dance and talent competitions in the last decade and a half have brought out the best talents in the country which otherwise wouldn't have been possible through the traditional approach," he said.
Echoing the sentiment, Kejriwal Research and Investment Services founder Arun Kejriwal said "markets itself have to do certain things to bring in new investors and improve retail participation".
"The world over, trading competitions and games have proved to be successful in bringing in new retail investors and ultimately healthy growth," Kejriwal said.
"Educating the masses and making investing fun is how this market will grow. These are also the natural evolution of the market. Banning competitions and games is ill advised and regressive," he noted.
Suggesting that there is need to distinguish between gambling dens from competitions that provide skill-based training albeit with some money involved, Finsec Law Advisor founder and Sebi's former executive director Sandeep Parekh added that many business schools run competitions where portfolios are made as a game.
"While the first one (gambling) is clearly illegal, the
second (competitions/leagues) is not really an illegal exchange and is a training ground for investments," Parekh said, adding that "the two should be distinguished clearly and only the first one banned".
Asserting that leagues are part of the education process for investors, Jimeet Modi, CEO of Samco Securities, which operates stock trading competition the Indian Trading League, said: "Financial competitions are successfully operating in many countries like the US and Europe and help in development and financial inclusion."
Modi, who is planning to make a formal representation to Sebi to rethink the proposed ban on competitions, noted that the regulator should instead mandate organisers of such games and competitions to make relevant disclosures so as to enable investors make an informed decision.
According to Modi, organisers should be required to disclose the risk of investing in securities markets and the scheme or competition, conflict of interest policy and disclosure of conflicts to investors and grievance redressal mechanism by compulsory inclusion of arbitration clause, among others.
Agreeing that Sebi should regulate the competitions instead of banning them, Baliga proposed that a criteria should be prescribed to operate such schemes.
"Sebi should ensure only those individuals who qualify for the minimum criteria are allowed to participate. This will ensure the basic hygiene factor and serve the purpose of attracting more investors and traders to equity markets," he said.
