Playing real-time online stock trading games – either for making money or just for fun? Here’s a mood spoiler!

After one month from now, you will not be able to play such games. Even if you do access such games on any website or app, the stock price data there would be old. 

You may ask, what would be the fun playing such games without real time data? Well, this is the new development that you will have to live with.

Through a circular dated 24th May 2024, the Securities and Exchange Board of India (SEBI) has pulled the plug on online platforms offering trading games designed around real time stock prices.

Zerodha Founder and CEO Nithin Kamath sees this circular as the end of platforms offering trading competitions, demo trading, CFDs, and more. “Sebi’s circular essentially means that it ends all platforms offering trading competition, demo trading, CFDs, and more,” Kamath posted on X (formerly Twitter) on 25th May 2024. 

However, you shouldn’t be much surprised with SEBI’s move!  

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Not a Big Surprise!

There has always been a question mark on the legality of online platforms offering trading or fantasy games based on real-time stock prices. It is true that in the absence of strict orders, such platforms have mushroomed over the years. But SEBI’s regulatory framework never explicitly permitted online stock trading-based games.

In fact, last year, the National Stock Exchange (NSE) warned against the use of exchange data for gaming and virtual trading purposes. “It has come to notice of the Exchange, that some market participants are using the Exchange data for gaming and virtual trading purposes which goes against the principles of fair and transparent trading,” NSE said in a circular dated April 10, 2023.  

A year before the above circular, NSE reportedly issued notices to multiple fantasy stock trading apps to immediately stop using its data for virtual gaming platforms based on real-time movement of shares. A Your Story report said the NSE even sought damages up to Rs 10 crore for violation of the exchange’s “intellectual property rights, cost for loss of revenue and reputational loss.” 

Kamath wrote as back as in August 2020 that exchanges in India were not allowed to provide data to any virtual trading or gaming platforms. The exchanges would also take action on those who scrape data from exchange websites or other broking websites, and use it on their platforms.

How do online stock trading games work?

Several online platforms allow users to play fantasy stock games and leagues. These games include creating fictional stock portfolios and competing with other users. To enter such games, participants are generally required to pay a fee. Users with top-performing portfolios in such games often win cash prizes. Their portfolios are ranked based on a point system linked directly to real-time prices of stocks listed on stock exchanges. 

The capital markets regulator took note of such platforms in its recent circular, saying: “It has been observed that certain online gaming platforms, apps, websites, etc. are providing virtual trading services or fantasy games which are based on  movement of real time share prices of listed companies. Some platforms are even offering monetary incentives based on the performance of the virtual stock portfolio.”

What’s New?

The markets regulator discussed the issue of sharing of real time price data with third parties in its Secondary market Advisory Committee. And made the following recommendations: 

• No real time stock price data can be shared with any third party including virtual trading platforms.
• Real time data can be shared only where sharing of such data is required for orderly functioning of the securities market or for fulfilling regulatory requirements.

“Stock exchanges, clearing corporations and depositories (collectively referred as Market Infrastructure Institutions (MIIs)) and registered market intermediaries shall ensure that no real time price data is shared with any third party including various platforms, except where sharing of such information is required for orderly functioning of the securities market or for fulfilling regulatory requirements,” SEBI said. 

MIIs are now required to enter into “appropriate agreement with entities with whom they intend to share real time price data”. 

Such agreement shall provide for “activities for which the real time price data would be used by the entity including the justification that it is required for orderly functioning of the securities market.” 

No real time data sharing allowed even for education purposes

However, market price data may be shared for investor education and awareness activities without any monetary incentive with a lag of 1 day, according to the regulator.  

“Market price data may be shared for investor education and awareness activities without offering any kind of monetary incentive to the participants, with a lag of 1 day. 

SEBI said that the provisions of this circular will be applicable from the 30th day of issuance of the circular i.e. 23rd June 2024. 

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Disclaimer: The above content is for informational purposes only. The 1% News recommends consulting a SEBI-registered investment advisor before making any investment decision.