PremiumThe Securities and Exchange Board of India (Sebi) on Wednesday passed an order against six individuals who were using social media to manipulate stock prices. Mint examines the challenges facing the regulator in checking such manipulation.
The Securities and Exchange Board of India (Sebi) on Wednesday passed an order against six individuals who were using social media to manipulate stock prices. Mint examines the challenges facing the regulator in checking such manipulation.
What did the regulator find?
It was a classic pump-and-dump scheme being carried out on Telegram messaging service. Six individuals, four of whom claimed to be research analysts, ran a Telegram channel called bullrun2017 or Bull Run Investment Education Channel. They bought shares of select small caps, recommending them on the Telegram channel to people, and once the stock ran up, sold those shares. They pocketed a tidy ₹9 lakh by recommending Total Transport Systems Ltd multiple times. As of December 2021, the channel had 50,000 subscribers.
What are the broader concerns?
Stock market manipulation is as old as trading. While trading has become digital, so has stock manipulation. The social media can be an effective tool for investors to research a particular stock. However, it can also be used by fraudsters to spread false or misleading information about a stock to large numbers of people with minimum effort. Many social media influencers end up recommending stocks without being registered investment advisors. In many cases, these entities conceal their true identities by acting anonymously or even impersonating credible sources of market information.
Is this the first such case of stock manipulation?
In the last one year, Sebi has passed two orders against the news anchors of Hindi business channel CNBC Awaaz who allegedly recommended small cap stocks to viewers in a pump-and-dump scheme. The regulator has also investigated leakage of financial results of Axis Bank Ltd, Bata India Ltd, HDFC Bank Ltd, and Tata Motors Ltd among others.
Can’t Sebi simply crack down on them?
Sebi has been able to collaborate with the Telecom Regulatory Authority of India to curb stock tips through bulk SMSes. However, social media regulation is trickier. In social media channels such as YouTube and Twitter, the entities can send out bulk recommend-ations without being registered with Sebi, and anonymously. Tracing the ‘mastermind’ of a scheme is difficult as the messages are end-to-end encrypted. Sebi had petitioned WhatsApp to trace where such messages originated, but nothing much came of it.
What is the way forward?
This order sets a precedence that the regulator is not just aware of such manipulation schemes but is also willing to act with the investigation tools at its disposal. The order does two things: it acts as a deterrent for such market manipulators, and it serves a warning to investors to be careful with such channels and unsolicited market advice. It will always be difficult to crack down on all market manipulations. Educating investors to stay away from such channels, an exercise the US SEC undertook in 2015, is easier.
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