SEBI's New Regulations: Stricter Norms for Financial Influencers, Simplified Delisting Rules

What’s in today’s article?

• Why in News?
• What are Finfluencers?
• New rules by SEBI

Why in News?

The Securities and Exchange Board of India (SEBI), India’s markets regulator, has asked brokers and mutual funds to stop using the services of unregulated financial influencers for marketing and advertising campaigns.

In addition to regulating finfluencers, SEBI has introduced a fixed price process for delisting frequently traded shares and established a delisting framework for Investment and Holding Companies (IHC).

What are Finfluencers?

• About
  • Finfluencers are people with public social media platforms offering advice and sharing personal experiences about money and investment in stocks. 
  • Their videos cover budgeting, investing, property buying, cryptocurrency advice and financial trend tracking.
• Popularity of finfluencers
  • The popularity of finfluencers is evident from their massive subscriber counts, often exceeding those of leading broking firms. 
  • This has resulted in substantial earnings for the most successful finfluencers, with estimates ranging from Rs 15 lakh to Rs 30 lakh per month.
  • However, the low barriers to entry in this space have also led to increased exposure to potential bad actors and questionable advice.
• Need to regulate finfluencers
  • There has been a sharp rise in the number of various ‘unregistered’ investment advisors giving unsolicited social media ‘stock’ tips on various social media platforms.
    • The rise of finfluencers can be attributed to India's low financial literacy rate of 27% and the influx of new investors during the Covid-19 pandemic. 
    • With the democratization of trading through new-age broking apps and affordable smartphones, many first-time investors turned to finfluencers for guidance.
    • However, the lack of financial education and the focus on market updates by business news channels created a vacuum that finfluencers have been filling.
  • There were also reports that certain companies used social media platforms to boost their share prices through such finfluencers.
  • Recently, an online portal claimed that finfluencers get paid Rs 7 to 9 lakh per endorsement to push financial products on social media.
  • There are two important aspects which requires attention:
    • It is unclear if these influencers have any educational or professional qualification to offer such financial advice, and 
    • If there is any kind of monetary transaction that happens between them and the entity they are promoting.
• Criticism
  • Critics have raised the concerns in this regard. They claim that finflencers render advice to their followers which comes under the ambit of Freedom of Expression of the Constitution.
  • Followers are not forced to take action based on the recommendations of these finfluencers.
  • They point towards the fact that often celebrities endorse certain products without having any expertise. Also, they take money to promote the products.
  • In this context, these critics claim that regulating the finfluencers would be improper. 

New rules by SEBI

• SEBI Tightens Norms on Financial Influencers
  • Under the new rules, brokers and mutual funds are prohibited from using the services of unregulated financial influencers for marketing and advertising campaigns. 
  • However, financial influencers engaged in investor education will be exempt from these restrictions. 
  • The regulated entities will be responsible for ensuring that the individuals they associate with adhere to the rules of conduct set by SEBI, including avoiding promises of assured returns.
• Changes to Derivative Trading Regulations
  • SEBI has introduced new criteria to determine which stocks can be linked to derivative products, such as futures and options. 
  • The total number of stocks eligible for derivative trading is expected to increase slightly.
• Eased Delisting Rules
• The regulator has approved changes to delisting rules, making it easier for companies to exit from stock exchanges. 
  • Currently, delisting is carried out via reverse book-building.
  • Reverse book-building is primarily used by companies that wish to delist their shares from a stock exchange. 
  • The objective is to determine the exit price at which shareholders are willing to sell their shares back to the company or promoters.
• Companies can now offer their shareholders fixed prices for shares as an alternative to the current reverse book-building mechanism. 
• The fixed price must be at least 15% above a floor price, which will be determined by rules set by the regulator.
• The regulator has also decided to remove financial disincentives for the managing director and chief technology officer of exchanges and other market infrastructure institutions (MIIs) in the event of technical glitches.

Q.1. What is the Securities and Exchange Board of India (SEBI)?

SEBI, the Securities and Exchange Board of India, is the regulatory body tasked with overseeing and regulating the securities market in India. It ensures investor protection and promotes fair and orderly functioning of the markets.

Q.2. What is reverse book-building?

Reverse book-building is a process used to determine the price at which a company's shares will be delisted from a stock exchange. Shareholders indicate the minimum price they are willing to accept for their shares during this period.

Source: SEBI tightens norms on financial influencers, eases rules for delisting | Times of India