Mumbai: The Securities and Exchange Board of India (Sebi) On Tuesday issued a draft circular inviting public feedback on the criteria for recognizing digital platforms as Specified Digital Platforms (SDPs).
According to Sebi, the recognition of these platforms is crucial to ensure they do not enable illegal activities related to securities, such as unregistered entities offering advice or making unauthorized claims about the performance of securities.
The consultation paper containing the draft circular outlines a detailed framework for the recognition of digital platforms as SDPs.
An SDP is a digital platform which has a mechanism in place to take preventive as well as curative action, to the satisfaction of the Sebi board, to ensure that such a platform is not used for any activity specifically prohibited by Sebi.
In August 2024, Sebi introduced amendments to its regulations to curb unregistered entities from making unsolicited recommendations or claims regarding securities, which could potentially mislead investors.
A key provision in these amendments states that no entity regulated by Sebi—such as recognized stock exchanges, clearing corporations, and depositories—should associate, either directly or indirectly, with any person who provides advice or recommendations related to securities without being registered with Sebi or makes any claims regarding returns or performance of securities unless specifically permitted by Sebi.
However, with the new draft circular, these restrictions will not apply to digital platforms that are officially recognized as SDPs by Sebi. Such platforms will be permitted to act as intermediaries for content or advertisements relating to securities, provided they comply with the strict preventive and curative measures outlined by Sebi.
Requirements for recognition as a specified digital platform
The circular stated that for a digital platform to be recognized as an SDP, the platform will have to demonstrate to Sebi that it has implemented strong mechanisms to both prevent and address any violations of securities regulations.
The circular emphasizes preventive measures, including collaboration with Sebi. This collaboration should involve a policy that enables the platform to share relevant data and information related to securities markets with Sebi, and to act upon Sebi’s guidance and inputs. Sebi also stressed the need for the platform to deploy advanced technologies, such as artificial intelligence (AI) and machine learning (ML), to monitor and analyze content, along with policies to prevent impersonation, fraud, and ensure entity verification.
Additionally, the circular outlines curative measures to address violations should preventive measures fall short. These include establishing a reliable system for escalating and reporting fraudulent or illegal content, both by Sebi and platform users, and implementing a blacklisting mechanism for repeat offenders.
Digital platforms will be required to submit their application for recognition as a specified digital platform within three months of the issuance of this circular.
