Indian Securities Regulator Issues Advisory Against Unregistered Trading Apps and Prop Trading Platforms

India's Securities and Exchange Board (SEBI) has issued a strong advisory cautioning investors against using apps, web applications, or platforms that offer "virtual trading services, paper trading, or fantasy games" based on the stock prices of listed companies. This marks a clear warning to investors to avoid trading platforms that operate outside SEBI’s regulations.

Violations of Securities Laws

According to SEBI, these virtual trading platforms violate two key laws: the Securities Contract (Regulation) Act, 1956 and the SEBI Act, 1992, which were established to safeguard investor interests. Although SEBI did not name specific “prop trading” or “funded trading” platforms, the advisory indicates that these types of services fall under its purview.

Increasing Regulatory Attention on Prop Trading

SEBI's advisory follows an update from the Reserve Bank of India (RBI), which recently expanded its warning list to include several contracts for differences (CFDs) brokers and some prop trading platforms. While RBI oversees forex brokers, SEBI regulates the country’s securities markets. Together, these advisories reveal that India’s regulatory bodies are keeping a close watch on platforms that may not follow local laws yet still cater to Indian investors.

The trading of CFDs and other over-the-counter (OTC) derivatives remains unregulated but legal in India, creating a “grey area” for offshore brokers seeking Indian clients. Although these brokers are not licensed within India, the lucrative local market has attracted numerous foreign CFDs brokers to serve Indian traders. Most of these brokers operate under offshore licenses, which means they do not adhere to Indian regulatory standards.

Global regulatory bodies have taken note. Earlier this year, the European Union conducted preliminary reviews to regulate prop trading platforms, and Australian regulators are monitoring the sector. In Italy, regulators went so far as to compare these platforms to “video games,” cautioning investors that participation might carry substantial risk.

SEBI’s Final Recommendation

“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.”