Indian Regulator Calls Prop Trading Platforms “Unauthorised”

The Indian regulator overseeing the local securities markets has issued an advisory against “apps/web applications/platforms” offering “virtual trading services, paper trading, or fantasy games to the public based on stock price data of listed companies.” Although the agency did not specifically name “prop trading” or funded trading platforms, it clearly indicates such platforms.

“Such activities are in violation of the Securities Contract (Regulation) Act, 1956 and SEBI Act, 1992, which are laws designed to protect investors,” the Securities and Exchange Board of India (SEBI) added.

Indian Regulator Takes Notice of Prop Trading

Interestingly, the Indian central bank recently updated its warning list, which contains a long list of contracts for differences (CFDs) brokers, adding the names of a couple of prop trading platforms. While the Reserve Bank of India controls all forex brokers, SEBI regulates the securities market.

Although India does not regulate retail CFDs trading, it does not ban it outright. Thus, retail over-the-counter brokers operate in a grey area in the country. However, the country is very lucrative, and several foreign CFDs brokers are onboarding local clients, mostly under offshore licences.

When it comes to prop trading, these platforms are unregulated worldwide, including in India. Such platforms do not handle client funds for investment, so they cannot be categorised as financial services platforms.

However, these prop trading platforms are now under regulatory scrutiny worldwide. Finance Magnates earlier reported that the pan-European agency ran initial checks on regulating such platforms, while the Australian regulator is also monitoring them. Recently, a prop trading platform that expanded into Italy revealed that the local regulator’s attention on the sector is “very high.”

Meanwhile, the regulator in Italy compared prop trading platforms "video games" while the ones in Belgium and Spain also issued warnings against them.

Participation at “Own Risk, Cost, and Consequences”

Interestingly, the Indian securities regulator also issued warnings in 2016 against platforms offering “leagues/schemes/competitions, etc., related to securities markets,” highlighting that those platforms were soliciting investors. Notably, that warning did not specify anything related to the prop trading model, as the sector’s popularity had not surged then.

“Participation in unauthorised schemes, including sharing confidential and personal trading data, is at investors’ own risk, cost, and consequences, as such schemes/platforms are not registered with SEBI,” the latest advisory of the Indian regulator added.

“SEBI is issuing this caution, advising investors not to engage in or undertake investment or trading activities through unregistered intermediaries/web applications/platforms/apps.”