India’s leading fantasy portals are now looking to enter a new segment – fantasy stock trading. India’s unicorn fantasy platform has recently launched a fantasy stock trading platform under the name Investro while other leading players at various stages of deliberating a foray into fantasy stock trading. Investro is operated by DSPS Tech Platform Private Limited which is related to Dream11, according to a report on Economic Times. 

Ripu Sudan Kundra alias Raj Kundra, a British businessman and husband of Bollywood actress Shilpa Shetty launched a fantasy stock trading platform back in 2016.

These fantasy stock games involve users creating fictional portfolios of stocks and competing with other users in a contest. Similar to a fantasy cricket game, users pay an entry fee to enter these contests and the users of the best-performing portfolios win cash prizes. While points system in a cricket fantasy game is linked performance of players in a real match. The point system in a fantasy stock game is linked to the performance of the actual stocks on the stock exchange.

These fantasy games or leagues do not involve trading in any actual shares or the right to sell or purchase any actual shares but the performance of the portfolio tracks the price movements of shares actually traded on the floor of the stock exchange. Similar to fantasy cricket game which is termed as a ‘games of skill’, operators claim these fantasy stock games as ‘games of skill’.

But players may note that these stock trading platforms are not regulated by any authority. The Securities and Exchange Board of India back in 2016 cautioned investors against participating in leagues/schemes/competitions, related to securities markets and said that such schemes are “neither approved nor endorsed” by Sebi or Sebi recognised exchange(s).

In case SAMCO Securities Ltd & Ors. V. SEBI & Ors., the Bombay High Court dealt with the legality of SEBI’s powers to restrict the petitioners (a stock broker) from operating, a trading league called the Indian Trading League (endorsed by Kapil Dev). The Court in this case held that SEBI is within the powers to restrict brokers from operating any schemes, leagues or competitions which may involve distribution of money, gifts or prizes based on trading of actual, listed securities. This case pertains to participants who traded in actual securities were ranked and those who had built daily, weekly, monthly or quarterly portfolios that attracted the highest returns among the participants, were rewarded. This case dealt with an entity which is already regulated by SEBI.

But the fantasy operators are currently not regulated by SEBI and operate in a legal grey area which is a feature of any real money gaming platform in India.

Securities Contract Regulation Act, 1957 (SCRA) is the primary law for regulation of stock exchanges and for prescribing penalty for unauthorised trading in securities. As per Section 2(h)(ia) of SCRA, the term securities includes within its ambit derivative, rights or interests in stocks or shares and any other instrument so declared by the central government. The term ‘derivative’ has been separately to include a contract which derives its value from the prices, or index of prices of underlying securities.

Now one can argue that fantasy stock games derive value from real stock movements and thereby are derivatives attracting the provisions of SCRA.

Apart from a discussion paper in 2016, SEBI has not deliberated publicly on this and appears least interested to regulate this area. Till a specific clarity is brought in users of stock fantasy gaming platforms will not have any protection mechanism that an investor is entitled to from SEBI.