Impact of finfluencers in FinTwit

Dear @nithin,

Searched in Zerodha Knowledge base but didn’t found any suitable topic or clarification yet. Would you like to share your thoughts on Impact of Financial Influencers?

  1. Who can be identified as influencer?
  2. What is an advice and advisor?
  3. Is platform like Varsity or other portal or person who don’t take money/reward for discussion are falling under advice? What are the constraints?

Regards,
Anirban

There’s no set definition as such. I think we’ll have to go by what ASCI prescribes which is, “influencer’ means “someone having access to an audience and power to affect such audiences’ purchasing decisions or opinions about a product, service, brand or experience, because of the influencer’s authority, knowledge, position, or relationship with their audience

Any recommendation to buy/sell a stock, or if there’s any form of guidance to a prospective client can be construed as advice. Copy pasting the definition as per SEBI:

Anyone giving advice is qualified as an advisor.

I don’t think getting compensated/otherwise is a metric that let’s one qualify whether one is an advisor or not. There are other ways in which “advisors” who don’t take any direct compensation/reward can still benefit. For example: They can choose to advise stocks in which they have holdings themselves. Platforms like Varsity are purely educational in nature and don’t fall in the realm of being advisory in nature. The SEBI chairperson recently made it clear, stating that if someone’s naming a stock, they stop being educators and start being advisors.

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Whenever the government does not want the people to do something, instead of saying it, they will not make it clear. This way, when rules are not clear, people hesitate and are in confusion. It’s human psychology that when you don’t understand things, you get frustrated (like getting fed up) and do not pursue the thing that you started, and this is exactly what the government wants. The overall idea, if we see the bigger picture, is actually good because there is someone to take parent-type care like SEBI, unlike foreign governments.

A good example of this is crypto. They don’t want people to take part, so no clear-cut circulars or ideas, increased taxes, etc., which in my personal opinion is good as crypto is a scam by the US to create something non-regulated to wipe its debt and control the planet, as crypto movements are dictated without any basis. So our government understands this, but general people are greedy; they just want to fill their own pockets anyway.

So overall, it is good that SEBI is there. I do not think they will ever come out with a proper circular or anything on this, but they are going to poke in between such comments. My personal opinion.

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Audience is an abstract word. One can have reach to 5k people, 50k people or 5Lakh people. In a tea shop 5 people discussing is also a set of audience. In an office 10 trader discussing thoughts & making some trading/investment decision that is too audience.
So if I have understood well there is no definite jurisdiction yet to identify an influencer or a common man opinion as advice.

By the way thanks for clarifying the media part where daily thousands of advices are given and most front running cases are observed.

What is a prospective client? What is the definition of client? Client means there has to be exchange of tangible stuffs like money, reward. Is my understanding is correct? 100 people discussing potential of stocks, can it be termed as stock advice?

If someone already saying he or she have holding or position in any underline so there is no indirect benefit, it’s disclosed. Like CONSOLE has a “Trade Note” section for logging purpose, if someone choose any blogging site for personal record tracking purpose, will it be fall under influence or advice?

Naming the stock means? So nobody can speak or discuss about stock openly? Is there any jurisdiction?

Thanks @VenuMadhav for taking time and sharing input, waiting further to clear some more air.

Dear, @nithin If we can have a page in Varsity, seems it will be helpful. A QNA section also will be helpful for larger mass.

Also a question which you might not be able to answer directly, but if you are seeing this just a common man perspective, if a profitable trader (as per SEBI 90% trader are loss making), logs his or her trading/investment ideas as open source publicly, is it breaking any rule?

I don’t think I have conclusive answers to your questions, and whatever I state is my persona opinion based on my experience of having been a part of this industry and having dealt with regulators.

I think it’s better to err on the side of caution than tick off the regulator and do something that will get them knocking at your doors. This is the philosophy we’ve adopted at Zerodha too, if anything’s regulatory grey, consider it black!

I don’t know if you’re aware, but SEBI had floated this consultation paper for public comments sometime last year, we’re awaiting regulations and are hoping it’ll clarify things that are blur today. Till such time, we just exercise commonsense on what “audience” means. Again, I don’t think you can assign a fixed number of audience to qualify someone as “influencer”. For example, someone with a social media following of 5k may mean nothing, but if you’re able to garner a physical meet of 5k people, you could probably be considered influential?

Again, depends on how you look at it, the glass is either half empty or half full :slight_smile: If you’re talking about a stock on twitter, on your own, and have followers paying attention to your tweets, they could potentially be your “prospective clients” if you’re offering any service.

You have to understand where the regulator is coming from, I know it’s easier to blame them for lack of clarity, but it’s a problem they’ve been trying to solve because they understand the menace the so called influencers/gurus are creating with their reach which ultimately does not augur well for the future of capital markets and its investors. They have to strike a fine balance between being stringent so as to ensure that the interest of the investors are protected, and not curtailing someone’s fundamental right of freedom of speech and expression.

One can’t deny the fact that in the recent past, there has been a surge in the number of “educators” who openly pitch stocks (quasi advisory) under the garb of the content being educational in nature, with appropriate disclaimers. If you tracked the trading activity on the stock exchange in the particular scrip, you will see that it corroborates with tips being given on social media with large following. As a regulator, they can’t shut their eyes knowing very well that the content is stepping into the territory of advisory and that the content creator has paid no heeds to advisory regulations that require things like basic risk profiling etc to be done.

As brokers, even we face confusion around certain regulations and as brokers, we’ve always adopted a conservative approach. For example: Brokers are required to take approvals from the stock exchange before they issue advertisements and the stock exchange’s definition of advertisement is any content in public media that may “influence investment/trading decision”.

Now what can influence investment/trading decision? Practically anything. For arguments sake, someone stating that tomorrow is solar eclipse could influence someone’s investment decision who trades/invests based on planetary postions :slight_smile: so yeah, you’ll just have to exercise common sense.

To answer your specific question, I think someone logging their trading/investment ideas publicly with/without a following is still stepping into the boundary of investment advisory and again, these are my specific views and as I’ve said earlier, I’d rather err on the side of caution than have the regulators knocking at my door.