Advice thru SMS thrives despite SEBI’s caution

Our Bureau Mumbai | Updated on April 07, 2011

The SEBI's caution to investors to guard against stock tips being circulated through bulk SMS, print and electronic media has not deterred those in the trade.

A recent SMS doing the rounds on Tuesday said, “Buy one crore Mumbai database for Rs 5,000, 20 crore pan-India data for Rs 15,000, buy 2 lakh bulk SMS/email for Rs 5,000 or make Web sites for Rs 5,000.”

With bulk SMSs and email coming dirt cheap, it is very easy for those who want to give trading tips to reach out to large number of people.

Market experts say it is impossible to weed this practice out. The SEBI had on March 23, reminded registered intermediaries not to spread unauthenticated news through blogs, chats and email until it was approved by their compliance department.

Not under SEBI's purview

Experts say many of the entities who circulate bulk SMS do not fall under the purview of the SEBI, and hence cannot be booked. “The caution is just a statutory warning, nothing more,” said Mr Arun Kejriwal, Founder of KRIS Research. “Had the regulator wanted to really take action against such entities, they could have easily requested the telecom regulator to pull the plug against such types of bulk SMS,” he added.

But some are relieved that at least a beginning has been made. “SEBI has made it clear that it is not acceptable,” said Mr Prakash Diwan, Head, Institutional Equities, Networth Stock Broking. “Increasing investor awareness is the key, and investors on their part should also give it a thought as to why the sender of such an SMS is so benevolent to him,” he added.

Two models

Experts say brokers usually do not spread such rumours — they only suggest whether to buy or sell a stock. “There are two kinds of business models usually adopted,” said Mr Kishor Ostwal, CMD, CNI Research. “The first type is a pure distributor who disseminates anywhere between a crore and five crore SMSs a day, and the other who gives pure technical calls to a select group of clients for a monthly fee ranging from Rs 5000-10,000.”

On the modus operandi, he says the operators identify a stock, and strike a deal with the company's promoters to jack up the price of the scrip. Once the scrip price goes up, the promoters sell a portion of their stake, make money and share the spoils with these operators.

“They cannot be caught easily because nobody knows their true identity, and they operate out of very small establishments — sometimes even a room as small as 25 square feet and communicate only through SMS,” said Mr Ostwal.

Published on April 07, 2011

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