The text and the subtext of the ‘SMS scrip’ menace!

KS Badri Narayanan | Updated on August 28, 2020

Have you heard of Unsolicited SMS scrips? Now, stock exchanges regularly come out with list of stocks that are under this category to warn investors of manipulators.

“Investors beware while dealing based on unsolicited Tips/ Recommendations through Whatsapp, Telegram, SMS, Calls, etc and take an informed decision before investing,” the BSE cautioned recently.

According to the BSE and the NSE, currently four scrips -- Mittal LifeStyle, Omaxe, Thinkink Picturez and Leading Leasing Finance and Investment Company -- belong to this category. Some 34 have been in the historical list that includes Mohit Industries, Steel Exchange India, Sawaca Business Machines, Gayatri Sugars, VB Industries, Viji Finance and Landmark Property Ltd.

Also, 46 scrips have been placed under watch list. Among them are prominent scrips such as Adani Gas, Alembic, Bodal Chemicals, Delta Corp, Edelweiss Financial Services, GHCL, India Cements, ITI, IOL Chemicals, IRB Infrastructure, Mastek and IRCTC.

Scrips under watchlist have the potential to enter the active list.

Modus operandi

Operators first identify, mostly illiquid and below par stocks, and accumulate them. After a while, they start sending messages to investors. Artificially, stock manipulators will increase the liquidity too on those scrips through circular trading.

Once the price goes up, they dump these stocks on gullible investors by capitalising on their greed. When gullible investors want to sell them, they may not find enough liquidity at the bourses and thus will be stuck with them. In the process, they will lose their hard-earned money.

According to experts, most of the SMSes are generated by Indore-based operators.

Exchanges keep warning investors about leagues/schemes/competitions etc offered by third party or group company /associate of stock broker, which may involve distribution of prize monies.

“Participation in such schemes is at investors' own risks, cost and consequences. Such schemes are neither approved nor endorsed by Exchange,” the BSE has further cautioned.

Market regulator SEBI also advised investors: “Deal with only SEBI-registered intermediaries and check their registration status on the SEBI web site before availing the services.”

As reported by BusinessLine in this column, exchanges and SEBI have an exclusive number on their web site which investors can use to lodge complaints about these misleading SMSes.

It must be noted that investors duped through these schemes are not eligible to seek redressal through the stock exchange dispute resolution mechanism/ grievance redressal mechanism. They can’t claim investor protection benefit under the SEBI/stock exchange jurisdiction.

Brokerages have also blocked all SMS-alert scrips identified by the exchanges from their trading software, so that traders or investors will not be allowed to trade on them.

No payout

But, if any client wishes to sell the stock (in the SMS ban list) that he or she already possesses, he/she can do so but with a special request to the broker.

However, the client will not be able to receive the credit or funds till the scrip remains under the SMS ban list.

The broker will hold his/her pay out and transfer to a separate designated bank A/c. Clients will neither get the credit or cannot be adjusted against debit in a/c.

Exchanges have also directed brokers to ensure that the clients do not transact further in the SMS stocks. Besides, if the client has closed his/her trading account with the brokerage, then the firm is liable to transfer its own funds.

Even after all these precautions, if investors fall prey to these manipulators, then they have to blame only themselves for their recklessness.

Published on August 28, 2020

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