[Khushi is a student at Institute of Law, Nirma University.]
The Securities Exchange Board of India (SEBI) has introduced new guidelines that will regulate the real-time sharing of pricing data with third parties. This is a significant step to prevent the misuse of such data by online platforms that offer virtual trading or fantasy games based on stock market movements. This strategy of SEBI aims to increase transparency as well as security in the financial markets. This initiative will mark a critical step in the financial market by regulating and securing the distribution of market data and further benefitting everyone who is involved in the market. Earlier, there were less strict measures for the same as it did not explicitly ban the sharing of real-time data unless it violated regulatory norms. This unregulated environment resulted in inconsistencies and increased threats to security and often led to misuse of sensitive data.
Brief Overview of the New Regulation
On 24 May 2024, SEBI through a new circular issued strict guidelines for sharing of real-time data prices. These new regulations will apply to all entities that are involved in the sharing of real-time price data like brokers, third-party data providers, and financial institutions. This wide coverage will ensure that all necessary data distribution channels are included which will reduce the risk of data breaches and misuse. The following provisions are included in these regulations:
Restricted sharing
It is the duty of the market intermediaries and market infrastructure institutions (MIIs) such as stock exchanges, clearing corporations, and depositories to ensure that the sharing of real-time price data is only restricted for the proper functioning of the securities market and to meet the regulatory requirements.
Agreement
There is a mandate for the detailed agreement between MIIs or registered market intermediaries and entities with whom the former wants to share real-time price data. This agreement includes all the necessary things like the purpose and activities for which such data is used. It also includes the justification for using such data for the orderly functioning of the financial market.
Due diligence
While sharing the real-time price data, it is the accountability of MIIs and market intermediaries to ensure due diligence while making the aforesaid agreement that all provisions are included in the agreement that is necessary to curb the misuse of such data by the entities.
Annual review and compliance
The entities with whom such data is shared shall be required to regularly conduct an audit and prepare a report of all data-sharing activities and submit it to the SEBI. This report shall be reviewed by the board of market intermediaries and MIIs. The entities shall also need to ensure transparency and compliance with the SEBI’s regulatory norms and robust data security and confidentiality guidelines.
Educational purpose
The market price data can be used for the education of investors and awareness activities provided that it is shared with a one-day delay and without offering any monetary benefits to the participants.
Potential Impact of the New Regulation
The new data security measures of the SEBI will positively impact the various stakeholders in the financial market such as traders, brokers, Third-party data providers, and investors. For market participants, these new guidelines will bring a more reliable and transparent environment. They can rely on the information that they use for trading activities with better data security measures which will further reduce the fraud risk and increase the confidence in the market.
For investors, especially retail investors, the new data security measures will prove as a major benefit regarding transparency in the market and reliability of data which further help them to make informed decisions related to investment. With increased regulated and secured data, investors' confidence in the market also increases and makes the market a safer place for everyone who is involved in it.
However, third-party data providers will have a somewhat negative effect. They have to adjust to the new guidelines which will increase their cost of licensing and compliance. Despite these negative effects, the benefits are expected to outweigh. Adhering to these new measures of data security by SEBI will provide them an opportunity to enhance their credibility and reputation.
These new stringent data security measures are created to increase the credibility, integrity, transparency, and efficiency of the financial market for all the stakeholders.
Benefits of the New Measures
The new stringent data security guidelines by SEBI will offer major benefits to the financial market. The main aim behind these new regulations is to improve the integrity of the market. This means increased transparency and consistent distribution of data which will create a fair environment for trading and reduce the likelihood of market manipulation. The introduction of increased measures for data security will protect real-time data from unauthorized access which in turn safeguards sensitive information and brings trust in the market. These new guidelines will also boost the confidence of investors by ensuring secure, accurate, and properly distributed data through authorized channels. This enhanced trust and confidence in the market can lead to increased market participation and liquidity, enhancing a healthier financial market.
Challenges and Conclusion
With several benefits, the introduction of the SEBI’s new stringent data security measures also brings several challenges. The major challenge for SEBI will be ensuring compliance of these new measures among the market participants which necessitates the SEBI to introduce robust monitoring and enforcement mechanisms to ensure the effective implementation of these new guidelines.
Since some of the industry stakeholders have expressed their concerns regarding the potential costs and operational changes that are required to ensure compliance with the new guidelines, this will also become a major challenge for SEBI to maintain a balance between the regulatory requirements and the need for the innovation and efficiency in the market.
The introduction of stringent guidelines for sharing real-time pricing data will mark a crucial advancement in the financial market. These regulations fill the regulatory loopholes and prioritize transparency, fairness, and investor protection in the financial market. Overall, SEBI’s circular restricting the real-time sharing of such data with third parties is a progressive step for the financial market as it ensures security and transparency to the dissemination of real-time market data which further enhances the integrity and confidence of the investors. While there are some challenges in the implementation of these guidelines, the long-term benefits attached to these guidelines are more substantial. These regulations will also align Indian financial market practices with the global regulations observed in the EU and USA. Similar practices in these regions have successfully increased the security and transparency in the market which will provide a benchmark to this initiative of the SEBI.