Sebi Issues Fresh Warning Against Unregulated Online Bond Platforms
The Securities and Exchange Board of India (Sebi) has issued a public warning against dealing with unregulated online bond platforms that sell unlisted debt securities, marking the second such alert in a year.
Key Takeaways
- Sebi warns against unregistered online bond platform providers (OBPPs)
- These platforms lack regulatory oversight and investor protection mechanisms
- Transactions may violate Companies Act and Sebi regulations
- Investors should verify platform registration before transacting
Regulatory Concerns
Sebi observed that certain entities, including fintech companies and stock brokers, are operating as online bond platform providers without obtaining mandatory registration from stock exchanges. These unregistered platforms operate without regulatory supervision and lack proper investor protection or grievance redressal systems.
“It has been observed that certain entities, including fintech companies and stock brokers, are offering services in the nature of online bond platform providers (OBPPs) without obtaining due registration from stock exchanges as mandated in Sebi in November 2022. These unregistered platforms lack regulatory or supervisory oversights and do not provide for any mechanisms for investor protection or grievance redressal,” Sebi said Wednesday in a public statement.
Legal Violations and Enforcement
The activities of unregistered online bond platforms may violate the Companies Act, 2013, the Sebi Act, 1992, and other financial regulations. According to Sebi, offering unlisted securities to more than 200 investors constitutes a “deemed to be public issue” under the Companies Act.
Last November, Sebi took enforcement action by banning three unregistered platforms – altGraaf, Tap Invest and Stable Investments – from selling securities.
“This violation occurs because offering unlisted securities to more than 200 investors makes it a “deemed to be public issue” under Companies Act. These activities could result in legal, regulatory or enforcement action against those involved in such activities.”
Investor Protection Advisory
Sebi strongly urges investors to exercise caution and avoid transactions on unregistered online bond platforms. The regulator emphasized that investors should verify the registration status of OBPPs before conducting any transactions and deal exclusively with Sebi-registered entities.
“Investors are urged to exercise caution and avoid transacting on unregistered online bond platforms. Investors should verify the registration status of the OBPPs prior to transacting, and deal only with Sebi-registered entities, so as to safeguard their interests,” Sebi said.
Any disputes arising from transactions on unregulated platforms will not have the same recourse available as transactions conducted through regulated entities, leaving investors vulnerable to financial losses.
