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  • Writer's pictureFIC Hansraj

THE FANTASY STOCK FIASCO

In a virtual twist to buy low, sell high, SEBI’s ban on fantasy stock trading platforms has left traders wondering, Was it all just a fantasy?





In the labyrinthine world of finance, where fortune rises and falls in the blink of an eye, there exists a whimsical corner known as fantasy stocks. We trade in stock, hoping it will soar in a few days. Instead, it plummets, leaving us in a financial free fall. Not only do we lose money, but also the broker fees, stock exchange fees, taxes, and other charges. It’s a roller coaster ride where the financial thrill quickly becomes a nightmare. But what if we could enjoy the thrills and spills of Wall Street without fearing financial ruin? That’s what fantasy stocks are: the markets can be played with monopoly money and the bragging rights of a top trader- all without putting a dent in our bank account.


Fantasy Stock: Financial Funland

Fantasy Stocks offer a delightful twist on stock trading allowing us to dabble in real stocks from exchanges like NSE and BSE. But here instead of worrying about the market fluctuations, it will enable strategizing in a risk-free environment. It provides an opportunity to speculate, plan, and compete with friends and strangers without the stomach-churning risk. It involves users creating fictional portfolios of stocks and competing with other users in a contest. Users pay an entry fee to enter these contests, and the best-performing portfolio creators win the cash prizes. The point system that ranks the performance of the fictional portfolios created by users is tied to the actual performance on the stock exchange. Typically, these games or leagues do not involve trading in any actual shares or the right to sell or purchase any actual shares but the performance of the portfolio tracks the price movements of the shares traded on the floor of the stock exchange.

It is basically financial freedom in a virtual world- where the only real loss is a nominal entry fee and the potential rewards include everything from shiny gadgets to dream cars. All we need to do is to predict if the price of the stock will boom or fall in the next 60 seconds and the only loss we bear if the trade doesn’t go our way is the nominal entry fee. It provides a haven for exploration.


The Fantasy Stock Frenzy

In India, multiple online stock gaming platforms allow users to play fantasy stock games. Key features include live data feeds, social networking with fellow traders, and leaderboards showcasing the top performer of the week. Here’s no dealing in actual shares but the virtual platform dances to the beat of real-world stock movements. Think of it like Wall Street without the pressure of the margin calls! India’s fantasy gaming industry is now a colossal INR 34,000 crore behemoth. This virtual playground now entertains 13 crore registered users. Unsurprisingly, cricket is the undisputed champion here, pulling in a hefty 85% of the revenue. Meanwhile, football, the perennial underdog secures a modest 6.32% pie. The future growth looks more fantastical, with Federation of Indian Fantasy Sports(FIFS) projecting the industry to skyrocket to INR 1,65,000 by 2025. The industry is on a winning streak, not planning to fall.



SEBI’s Data Dilemma

But when the fantasy stock experts were revelling in their fantasy virtual street exploits, all the fun screeched to a halt. In a twist straight out of the courtroom drama, the Securities and Exchange Board of India (SEBI) decided to pull the plug on fantasy trading stock platforms. So what drove SEBI to rain on this financial parade? These virtual trading apps use real-time data from heavyweights like the NSE and the BSE, to ensure that their trading platforms feel as authentic as the real ones. Also, exchanges gather revenue through primarily transaction fees on executed trades and subscription fees to access the data. Interference of the third-party platforms by using the data to host games,not only disrupts revenue streams but also flouts SEBI’s rules and regulations. SEBI rolled out a circular on May 27, 2024, aiming at stock exchanges, depositories, and clearing corporations. It barred them from sharing real-time data with outsiders unless it was for regulatory compliance or maintaining market decorum. To spill the beans, intermediaries must sign solemn agreements, justifying compliance with the guidelines. However, to educate investors and raise investor awareness, they can disseminate the data with a one-day delay. The norms are expected to come into effect on June 23, 2024.


This isn’t an out-of-the-blue decision made by SEBI. It had an eye on these platforms a long time ago. Back in 2016, an investigation into Raj Kundra’s operations revealed a murky world of data exploitation for gaming purposes, a practice rebuked by SEBI. Despite several warnings against such actions, the allure of easy gain led to new gaming platforms exchanging data from websites. Last year, amidst market euphoria, SEBI ordered influencer Ravindra Bharti and his wife to pay over Rs 12 crore a penalty after promising 1000 percent returns to the investors over an investment, ordering them to cease investment advisory services. The incidents tampered with the investor’s confidence in the security market.


These games prove to be detrimental to users. While these games earn money through increased user engagement, SEBI does not regulate them, dodging the need for disclaimers about real-world trading. Users might mistake their virtual success for mastery in Wall Street, only to crash while trading actual stocks. That’s why SEBI wants to pull the plug on their real-time data

joyride.



Regulatory Ripples

The immediate aftermath of the decision saw a flurry of reactions. Users of the platforms took to social media to express their frustration and disappointment. Fantasy Stock trading had become a beloved hobby for many, and the ban felt like a personal upfront.

Platform operators, on the other hand, were swift in their responses, some tried to criticize the ruling, while others started planning to pivot their business models. The regulations targeted trading platforms like Stockpe, Trading Leagues, and Bullspree, which allow users to gamble in these stimulated markets for monetary rewards, all from the safety of their screens. Stock pe, for instance, caters to participants aged 18-24, providing them with a gateway into the world of trading stocks while earning commissions from tournament participants. TradingLeagues recently showcased the sector’s burgeoning appeal by securing $3.5 million in pre-series, funding led by Leo Capital. However, with SEBI’s new rules, these once profitable sectors are now feeling the pinch, worrying about what the future holds.



Fantasy Future

The future of virtual stock games in India is now up in the air. SEBI's ban underscores the regulatory challenges faced by these platforms. Unless they comply and adapt to these regulations, their future remains bleak. Developers will need to modify their apps to comply with the SEBI’s regulations. The ban also raises questions about investor confidence in such platforms. SEBI's move reflects concerns over misleading users into believing that success in fantasy trading translates to real-world investing expertise. Clear disclaimers and educational efforts could be necessary if these platforms attempt a comeback in the future. Though according to SEBI’s guidelines, the price data can be used by educational fantasy stock gaming platforms that operate for free to raise market awareness. While they can still access data,they will be able to get it one day later. SEBI’s new regulations not only signal the end of paid virtual fantasy stock gaming platforms but also cast a shadow over free educational ones. This shift threatens to snuff out a crucial,engaging avenue for learning about the stock market,leaving both aspiring investors and educators in hunch.


While these virtual platforms are a way to learn about the market functioning, SEBI is now playing the role of a stern parent, mainly concerned with safeguarding the investors. This would surely push the developers to create more educational and responsible financial experiences- Less casinos, More classrooms!



Author: Neha Agarwal

Illustration : Cheruvu Sai Kartikeya



Sources

  • The Indian Express

  • Times of India

  • The Economic Times

  • Business Today

  • Finshots

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