The Securities and Exchange Board of India (SEBI) has released a consultation paper dated December 6, proposing significant changes to regulate investor education activities. The proposed norms aim to bring clarity on how registered entities such as stock brokers and exchanges can associate with unregistered entities under the guise of investor education.
A key highlight of the proposal is a restriction on the use of market price data from the preceding three months by individuals engaged solely in investor education. SEBI has suggested that educators can only use market data with a lag of at least three months to prevent potential misuse of information for indirect investment advice or claims related to securities. According to SEBI, this will ensure that investor education remains unbiased and free from any recommendations or advice in disguise.
The paper states, “A person engaged solely in education shall mean that such a person is not engaged in any of the two prohibited activities. Such a person should not use the market price data of the preceding three months to reference the name of any security or securities, including code names, in their talks, videos, or presentations.” If recent market price data is used, it may blur the lines between education and investment advice, which SEBI aims to prevent.
Regulating unregistered entities and associations
SEBI also emphasized that unregistered entities claiming to provide investment education must not indulge in two prohibited activities:
- Providing direct or indirect advice or recommendations on securities unless registered or permitted by SEBI.
- Making claims of returns or performance, either explicitly or implicitly, concerning any securities.
Further, the consultation paper highlights that registered intermediaries, such as stockbrokers or portfolio managers, must ensure that their association with unregistered educators does not involve any form of prohibited activity. This association includes financial transactions, referrals of clients, sharing client data, or promoting such entities. SEBI reiterated that any sharing of client information or payments in this context is strictly prohibited.
Branding, promotional, and marketing activities
SEBI’s paper also clarifies that registered entities may associate with educators for branding or marketing purposes, provided such educators strictly adhere to the regulations and do not engage in investment advice or claims of returns. Regulated entities must take responsibility for ensuring compliance and maintaining accountability for their associations with third-party entities.
