Top Five Legal Challenges faced by Platforms giving Share Trading Advice & Tips | Corporate Attorney for Stock Brokers in Delhi NCR | Corporate Lawyer for Stock Brokers in Delhi NCR |
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The Share Trading business has always been booming with a lot of opportunities for investors in the financial market. Many people are keen to invest in these markets and as a result, there has been the emergence of various Platforms both online as well as offline for providing suitable investment advice and tips to their clients. The modus operandi of all these portals are almost the same. These websites claim 99% accuracy, provide options based on the subscription, and send the tips through text messages on mobile phones, etc.
However, these platforms have to undergo various legal challenges as majority of them don’t comply with required legal standards, which can put them in legal hurdles. The Market Regulator Securities and Exchange Board of India (hereinafter referred as SEBI) has also barred dozens of the websites after receiving a lot of complaints from the investors, that certain share trading websites, providing them with investment advice have cheated them. However, this will continue to grow if these share trading websites don’t take immediate actions and duly comply with the legal standards as provided. Due to all these situations, the trust from these online websites has been dwindling.
These online share trading websites had to undergo some challenges which are mentioned as follows-
Inaccurate and Dependent Advisory
The share trading websites which provides the advice and tips to the investors may not always be accurate. Sometimes, the formulas and advice given by such portals can make the investors drown into the losses. Generally, such advisors are dependent on the research and surveys which are being conducted by using certain methods. They conduct such research either through fundamental research methods such as gaining information on stock markets through various news channels or by using the technical methods such as comparing drafts or graphs of various financial securities in the stock markets for few months and then take a comprehensive result out of the graph.
Again, the research which is conducted by share trading websites can be thorough, but it cannot give out a proper straight jacket formula to the investors for gaining the maximum returns. When such investments don’t work, the investors label such advisors as fraud which forces SEBI into banning such websites. This possesses as one of the biggest challenges for all these advisories in the market.
Privacy and Data Protection
Privacy and Data Protection has nowadays become the biggest challenge for any online portal for that matter. It may appear very simple to point out that there is a need to collect the information for sending emails or messages, however, the actual process of collection of the information from the investors can appear more complex than it seems, particularly when the information is tried to be collected in the legally compliant manner. Generally, websites fail to provide the required information about the limitations of the liability in the occurrence of any damage and misappropriation and therefore they become prey to the problems concerning privacy infringement. Also, Non-Compliance with the laws of data protection and privacy can give rise to various legal actions against such portals, and therefore it is required by them to take necessary precautions before launching their website and preparing Modus operandi.
Intellectual Property (IP) Issues
The challenge of Intellectual Property Rights can come off as one of the significant challenges for the advisories. The problem with intellectual property rights is two-fold. The first issue is regarding the protection of your Intellectual Property Rights and save them from any form of infringement for example. The second issue is in regards to ensure that material available on your website is not involved in any kind of infringement of the intellectual property rights of others. The online portals have to make sure their logo or flyers should not be similar to anyone else’s logo. If there is unauthorized use it will result in the infringement of the Trademark under section 29 of the Trademarks Act of 1999.
Also, the portals are required to comply with the original marketing language on their websites or in text messages or emails. If this is not followed, the problem of copyright infringement under section 52 of the Copyright Act may creep in. If the online portals fail to comply with all the standard requirements of Trademark and Copyright, it can put them at loggerheads with other brands who are involved in the same practices having similar designs for their logos. Certain legal complications can arise through non-compliance.
In the current times, most of the advisories have moved online for providing their services through various portals, and because of that, they are dependent on software and continuous development of the Artificial Intelligence. Further, Artificial Intelligence acts as the backbone of the share trading market nowadays in a way that is effectively crunch upon the data in real time. While the portals use different software, they generally don’t apply for the registration of the patent, which could be easily misused by the others.
Another problem concerning intellectual property rights could be that one platform can take advice from some other online tip- sheet portal and then sell it off as their “own” tips or advice and therefore it is advised to every online advisory portal to register their logos and flyers and issue Terms and Services on their websites to protect their intellectual property.
Non-Compliance with Securities and Exchange Board of India (SEBI) Guidelines
The SEBI (Investment Advisers) Regulations 2013, clearly provided the criteria for being the investment advisors. The Securities and Exchange Board of India Regulations of 1996 (Regulation 30), Advertisement Code provides that all the advertisements should be true fair and accurate and should be unambiguous. Also the same should not contain any false and mis-leading information. The online share trading firms should follow the above mentioned provisions so that it can safeguard itself from being barred by the SEBI.
Advertisement Restrictions
The Advertisement Standard Council of India (ASCI) administers and promotes the standards of advertisement practices and provides that there should be an honest representation of the claims put up by the online portals or websites. It also provides safeguards against misleading advertisements. Other than this the Consumer Protection Act also provides against the misleading advertisements by any producer or endorser.
There are some share trading websites which for the purpose of increasing the number of investors, indulge in providing misleading information like 99% accuracy of gains or sure-shot returns or profits because of which the investors might be tempted to be involved in share trading. Non-awareness of the standards laid by the council can act as one of the biggest challenges for the websites, providing share trading advice. In India, the statute provides for penalty or fine on infringement of advertisement standards or misleading advertisements which is up to 10 lakhs. However, there are many websites out there in the market, which make bogus claims. Such vexatious activities, not only increase the competition in the market but also affect the business of genuine websites who are involved in providing such services.
The share trading advisories cannot keep a regular check on working and activities of the users or investors as they are huge in number. Because of the carelessness of the investors, sometimes the online portals has to face the vexatious claims of fraud. The investors always expect the huge profits however they fail to understand that there is no 100% accuracy in this filed as share market fluctuates every second and they might not get the expected returns for their investment. Therefore it has become very important for the online portals to provide share trading tips to be extra cautious and take the necessary steps before its establishment. The content shared by these share trading firms cannot guarantee 100% returns or profits as most of them are dependent on various external factors. Therefore it is required that disclaimers are given in the proper way to avoid any future legal complications
Authored By: Adv. Anant Sharma & Bheeni Goyal