Fantasy stock games are speculative games which enable users to create fictional portfolios, and trade currency, stocks, futures etc. in a virtual stock exchange which simulate real stock exchange. Fantasy stock games use real time stock market data ("Stock Data") such that the performance of fictional portfolio mirrors the price fluctuations of the actual stocks on the real stock exchange. In India, there had been an increasing trend of free-to-play as well as competition-based fantasy stock games such as Indian Trading League, Threedots and Bullspree etc.
The regulatory (particularly, the securities law) landscape concerning fantasy stock games is mired in uncertainty, and therefore, concerns in relation to lack of monitoring of the usage of 'live' Stock Data and users' trading data would persist. Additionally, there could also be potential issues concerning any unauthorised luring of potential investors by popular performers/participants on these platforms by making real stock market recommendations (which is allowed to be done by only authorised persons under the Indian securities law)1. Resultantly, the regulators have adopted a conservative approach in relation to such platforms.
The regulatory regime in relation to stockbrokers was accorded clarity in 2016 by providing in the code of advertisements for stockbrokers that "Stock Broker or its associates/group company cannot directly or indirectly, sponsor or be associated with any schemes/ leagues /competition etc. which may involve distribution of monies/ prizes/ gifts/ medals etc."2
As regards regulating fantasy stock platforms, the Securities and Exchange Board of India ("SEBI") has adopted a cautionary/conservative approach, warning the investors against participating in leagues/ schemes/ competitions etc. related to stock market which are aimed at soliciting investors, and emphasised that "such schemes are neither approved nor endorsed by SEBI / SEBI recognized Exchange(s)" and investors shall have no recourse under the securities law framework against such schemes.3 Further, SEBI, vide a consultation paper dated October 7, 20164, amongst others, proposed to prohibit entities from organising/offering such any scheme/ competition /game /league on securities or pertaining to securities market in order to protect the interest of the investors.5
In addition, NSE has adopted a stringent approach in relation to usage/sharing of Stock Data by (a) prohibiting trading members and subscribers from using 'Market Data'6 (wholly or partly) "to create any financial index, whether custom or otherwise, including the creation of a composite index (index of indexes), or any financial instruments or contracts (listed or unlisted) unless separately licensed by the relevant NSE entity"7; (b) issuing cease and desist notices to various entities engaged in fantasy stock trading applications and seeking damages from such entities for misusing NSE data for fantasy stock trading on a commercial basis8; (c) issuing a communique requiring fantasy stock gaming platforms to immediately stop using NSE's data and reserved it for educational platforms9; and (d) prohibiting usage of NSE data for the purpose of "gaming and virtual trading", vide its circular dated April 20, 2023.10 These measures have led to discontinuation of various fantasy stock gaming application such as Ztocks, Bysos and Stocktry.
Thus, regulatory risks in relation to fantasy stock gaming platforms under the Indian securities law have been live given the conservative / cautious stance adopted by SEBI in order to safeguard the interests of investors.
On similar lines, SEBI issued a circular ("2024 Circular") on May 24, 202411, directing that market infrastructure institutions and registered market intermediaries ("Intermediaries") shall not disclose Stock Data with any third party ("Recipient") except where sharing of such information is required for orderly functioning of the securities market or for fulfilling regulatory requirements.12 Further, it provided that Intermediaries shall enter into agreement with Recipients which shall contain provisions to prevent misuse of such Stock Data, purposes for which the Stock Data can be used and justification for sharing such Stock Data with Recipient. Furthermore, the board of Intermediaries shall review (once a financial year) the list of Recipients and purposes of sharing Stock Data. 2024 Circular also provides that Stock Data may be shared for investor education and awareness activitieswithout any monetary incentive to the participants, with a lag of one day.
By restricting the dissemination/disclosure of Stock Data with any third-party including fantasy stock gaming platforms, 2024 Circular has reiterated stringent and cautious stance adopted by SEBI on fantasy stock gaming (particularly, in relation to Stock Data usage by such platforms) and negated the viability of the existing business models of such platforms which are premised on using Stock Data. Pursuant to the 2024 Circular, various stock gaming apps are shutting their business or pausing operations including Investro and others such as Trinkerr are reconsidering their business models.13
While 2024 Circular has put a halt on the unregulated fantasy stock trading platforms which may pose threats to investors in terms of risky investment patterns, unregulated investment advisory and any misuse of Stock Data, it has given rise to the following potential concerns: (a) it restricts not only the fantasy stock trading platforms which offer monetary incentives, but also purely educational platforms by requiring them to use outdated / delayed Stock Data with a gap of one day, which, given the volatility of stock market, can impact the educational experience, and in turn, may end up defeating the purpose of these educational platforms; (b) since 2024 Circular only restricts 'sharing' of Stock Data with platforms which operate for educational purposes, without monetary incentive, it has created a lacuna in relation to fantasy stock games which are free-to-play and offer no real money rewards, and which do not strictly fall under the purview of educational platforms as such (for example, Moneycontrol's Moneybhai14); and (c) while an exception has been created for sharing data (with one day's gap) for educational purposes, 2024 Circular has created a heavy compliance burden on Intermediaries while sharing such data, including amongst others, conducting due diligence and executing agreement with the Recipient to prevent misuse of data, timely review of the list of Recipients and the activities for which data is shared, and taking all necessary steps to avoid misuse of data. In view of the same, stock-related educational platforms such as Neostock15, Investopedia Stock Simulator16 may face difficulty in terms of obtaining necessary permissions to use even the historical stock data effectively and may be subject to a higher matrix of scrutiny and intervention by these Intermediaries.
While the abovementioned background coupled with 2024 Circular has made SEBI's intention to monitor/regulate stock-related gaming/educational platforms (particularly in relation to access to Stock Data) amply clear, the regulatory regime in relation to sharing of Stock Data is still at a nascent stage and the efficacy of 2024 Circular is yet to be determined in terms of precautionary measures that may be adopted by Intermediaries and remodelling of business models that may be undertaken by the fantasy stock gaming apps
Footnotes
1. Securities and Exchange Board of India, 'Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013', October 07, 2026, available at https://www.sebi.gov.in/sebi_data/attachdocs/1475839876350.pdf (last accessed on July 07, 2024).
2. National Stock Exchange of India, 'Revised Code of Advertisement for Stock Brokers', Circular Ref. No: 14/2023, February 02, 2023, available at https://www.nseindia.com/trade/members-code-of-advertisement (last accessed on July 07, 2024); and Bombay Stock Exchange of India, 'Code of Advertisement for Stock Broker', available at https://www.bseindia.com/downloads1/Code_of_Advertisement_for_Stock_Brokers.pdf (last accessed on July 07, 2024). Further, Section 9 of the Securities Contracts (Regulation) Act, 1956 allows stock exchanges to make bye-laws pursuant to which Chapter 3 of the National Stock Exchange's bye-laws allows it to engage in "supervision of the market and promulgation of such Business Rules and Codes of Conduct as it may deem fit."
3. Securities and Exchange Board of India, Press Release, 'Leagues / Schemes / Competitions Which May Involve Distribution Of Prize Monies', August 30, 2016, available at https://www.sebi.gov.in/media/press-releases/aug-2016/sebi-cautions-investors_33094.html#:~:text=Aug%2030%2C%202016&text=It%20has%20come%20to%20the,involve%20distribution%20of%20prize%20monies. (last accessed on July 07, 2024).
4. Securities and Exchange Board of India, 'Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013', October 07, 2026, available at https://www.sebi.gov.in/sebi_data/attachdocs/1475839876350.pdf (last accessed on July 07, 2024).
5. SEBI reiterated that such schemes are neither approved nor endorsed by it and disclaimed any recourse to investors from SEBI in respect of such schemes, and that such schemes/ competitions/ games/ leagues, etc. may attract/lure the general public, in the absence of transparency and authenticity in the process followed by such schemes (See, Securities and Exchange Board of India, 'Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013', October 07, 2026, available at https://www.sebi.gov.in/sebi_data/attachdocs/1475839876350.pdf (last accessed on July 07, 2024).
6. National Stock Exchange of India, 'Data Usage and Data Sharing Policy', available at https://nsearchives.nseindia.com/web/sites/default/files/inline-files/NSE_DataUsageandSharingPolicy.pdf (last accessed on July 07, 2024). Paragraph 14(e) of the 'Data Usage and Data Sharing Policy' of NSE defines 'Market Data' as "any data and information (including any figures, statistics, numbers) in relation to any securities and/or derivatives contracts (including price, identifiers, volume, trade related data) as well as any company. This includes, without limitation, on line streaming data, real time data (live feed data), snapshot data, delayed data, end of day data, historical data, tick by tick order and trade data and corporate data which may be transmitted to the subscribers by NSE or NSE Data."
7. Paragraph 8.1(a), National Stock Exchange of India, 'Data Usage and Data Sharing Policy', available at https://nsearchives.nseindia.com/web/sites/default/files/inline-files/NSE_DataUsageandSharingPolicy.pdf (last accessed on July 07, 2024).
8. Moneycontrol, 'NSE Seeks Rs 10 Crore in damages from stock-gaming apps for misuse of data', October 28, 2022, available at https://www.moneycontrol.com/news/business/nse-seeks-rs-10-crore-in-damages-from-stock-gaming-platforms-for-misuse-of-data-9403291.html (last accessed on July 07, 2024); and YourStory, 'NSE Issues 'cease & desist' notices to stock gaming apps', October 28, 2022, available at https://yourstory.com/2022/10/exclusive-nse-issues-cease-desist-notices-to-stock-gaming-apps?utm_pageloadtype=scroll (last accessed on July 07, 2024).
9. Moneycontrol, 'SEBI circular rings death knell as many stock gaming apps shut down, others rethink business models', July 10, 2024, available at https://www.moneycontrol.com/technology/sebi-circular-rings-death-knell-as-many-stock-gaming-apps-shut-down-others-rethink-business-models-article-12760314.html (last accessed on July 07, 2024).
10. National Stock Exchange of India, 'Usage of NSE Data only for Trading Purpose', Circular Ref. No: 35/2023, April 20, 2023, available at https://archives.nseindia.com/content/circulars/COMP56426.pdf (last accessed on July 07, 2024).
11. The 2024 Circular is effective from 30th day of its issuance, i.e., June 22, 2024.
>12. Securities and Exchange Board of India, 'Norms for sharing of real time price data to third parties', Circular No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/56, May 24, 2024, available at https://www.sebi.gov.in/legal/circulars/may-2024/norms-for-sharing-of-real-time-price-data-to-third-parties_83572.html (last accessed on July 07, 2024).
13. Moneycontrol, 'SEBI circular rings death knell as many stock gaming apps shut down, others rethink business models', July 10, 2024, available at https://www.moneycontrol.com/technology/sebi-circular-rings-death-knell-as-many-stock-gaming-apps-shut-down-others-rethink-business-models-article-12760314.html (last accessed on July 07, 2024).
14. Moneybhai, available at https://moneybhai.moneycontrol.com/ (last accessed on July 07, 2024).
15. Neostox, available at https://neostox.com/ (last accessed on July 07, 2024).
16. InvestopediaSumilator, available at https://www.investopedia.com/simulator/ (last accessed on July 07, 2024).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.