The Rise of Finfluencers: Sebi Approves New Regulations
The Securities and Exchange Board of India (Sebi) has taken a bold step to oversee unregistered financial influencers, commonly referred to as finfluencers. This move comes in response to growing concerns about the potential risks associated with biased or misleading advice from these influencers who often operate on a commission-based model.
Aside from 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). The regulator has also made changes to remove financial disincentives for the managing director and chief technology officer of exchanges and other market infrastructure institutions (MIIs) in case of technical glitches.
Who Are Finfluencers?
Finfluencers, a portmanteau of “financial influencers,” have become a powerful presence in the Indian stock market. They provide investment advice and information to millions of retail investors through platforms like YouTube, TikTok, and Instagram.
These influencers, often hailing from smaller cities, create content primarily in Hindi or regional languages to attract a large non-English speaking audience. The surge 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. The popularity of finfluencers is evident from their massive subscriber counts, often surpassing those of leading broking firms, leading to substantial earnings for the most successful ones.
However, the easy entry into this space has also increased exposure to potentially questionable advice from certain finfluencers.
New Regulations by Sebi
According to the new regulations, brokers and mutual funds are now prohibited from engaging unregulated financial influencers for marketing and advertising campaigns. However, financial influencers involved in investor education will be exempt from these restrictions.
Regulated entities must ensure that the individuals they collaborate with adhere to Sebi’s rules of conduct, including avoiding promises of assured returns. Additionally, Sebi has introduced new criteria for determining which stocks can be linked to derivative products, such as futures and options, which is expected to slightly increase the number of stocks eligible for derivative trading.
The regulator has also approved changes to delisting rules, making it easier for companies to exit from stock exchanges. Companies can now offer fixed prices for shares as an alternative to the current reverse book-building mechanism, with the fixed price set at least 15% above a floor price determined by Sebi.
These new regulations aim to ensure better transparency and accountability in the financial influencer space while safeguarding the interests of retail investors.
