SEBI's New Regulations Aim To Curb Misleading Financial Advice

The Securities and Exchange Board of India (SEBI) has a range of new regulations targeting the growing influence of finfluencers on India's investment landscape. These rules have been implemented in response to about potential biases and misleading advice from finfluencers, who often work on a commission-based model. The new regulations include a fixed price mechanism for delisting frequently traded shares and a streamlined delisting framework for Investment and Holding Companies (IHCs). Additionally, the regulations bring significant changes for exchanges and market infrastructure institutions (MIIs), such as removing financial penalties for managing directors and chief technology officers following technical failures.

Finfluencers have gained considerable popularity among India's vast retail investor base, particularly through platforms like YouTube, TikTok, and Instagram. Many of these influencers come from smaller cities and communicate in Hindi or regional dialects, taking advantage of the country's low financial literacy rate of just 27%. Their influence grew rapidly during the Covid-19 pandemic, filling the gap left by traditional financial education. Top finfluencers can earn between Rs 15 lakh to Rs 30 lakh per month, but the sector's low entry barriers have also increased risks associated with dubious actors and potentially harmful financial advice.

New SEBI Regulations

Under the new SEBI regulations, brokers and mutual funds are prohibited from employing unregistered financial influencers for marketing purposes. However, those involved in investor education will remain exempt if they strictly adhere to SEBI's conduct guidelines, including prohibitions on guaranteeing returns. In addition to influencer-related rules, SEBI chair Madhabi Puri Buch announced new criteria for linking stocks to derivative products like futures and options. This change will slightly increase the number of stocks eligible for derivative trading. Updated delisting rules now allow companies to offer fixed share prices to shareholders at a mandatory minimum of 15% above the floor price, streamlining the exit process from stock exchanges.