The Securities and Exchange Board of India (Sebi) has launched a significant crackdown on trading call providers (TCPs) following a surge in investor complaints, regulatory violations, and instances of outright fraud. This regulatory action aims to clearly distinguish between genuine financial advisors and speculative tip-sellers in the Indian stock market.
The Growing Problem with Trading Call Providers
Trading call providers are entities or individuals who offer short-term buy-sell recommendations, intraday trading tips, and derivative calls to investors, typically for a fee. Unlike registered investment advisors who create comprehensive financial plans aligned with clients' long-term goals, TCPs focus primarily on speculative trades and market timing.
Many of these operators function through social media platforms and messaging apps, often attracting investors with promises of high or guaranteed returns. A recent study by the Association of Registered Investment Advisors (Aria) revealed the alarming extent of violations among these entities, prompting Sebi to take decisive action.
Why Sebi Stepped Up Enforcement
Sebi's intensified crackdown comes in response to mounting evidence of misconduct. The Aria study analyzed 218 enforcement orders issued over the past decade and found that nearly two-thirds were against unregistered entities, all of whom were trading call providers. Even among the 71 orders passed against registered entities, over 90% targeted TCPs.
The regulatory body identified multiple violations including missing client agreements, coerced signatures on risk profiles, selling of higher-risk products, fraudulent misrepresentation, and collecting GST without proper registration. Many entities also lacked the required qualifications and maintained inadequate records.
The December 2024 Regulatory Shift
A pivotal change occurred in December 2024 when Sebi amended the Investment Adviser (IA) Regulations. The amendment formally declared that entities primarily engaged in providing trading calls, intraday tips, or derivative recommendations would no longer be eligible for registration as investment advisers.
This reform recognized that the investment adviser framework, established in 2013, was designed for fiduciary advisers offering holistic, long-term financial planning—not for speculative tip-sellers. The new regulations require entities providing research services for consideration to register as research analysts instead.
Impact on Legitimate Advisors and Investors
While the crackdown has improved market transparency, it has also increased compliance complexity for legitimate financial advisors. Many registered investment advisers report facing higher operational costs, stricter documentation requirements, and greater regulatory scrutiny.
Abhishek Kumar, founder and chief investment officer at Sahaj Money, noted that illegal activities by trading call providers damage the entire investment advisory profession by eroding public trust. He added that such instances leave regulators with little choice but to increase regulatory burden for all registered investment advisers.
However, the study also revealed encouraging data: only six complaints have been filed against registered investment advisors since 2013, none related to financial misconduct. Renu Maheshwari, chairperson of Aria, emphasized that these complaints were merely procedural, indicating that legitimate advisors are performing their roles effectively.
The regulatory actions have created a clearer distinction for investors between regulated, fiduciary advisers and speculative tip-sellers, providing stronger legal grounds for Sebi to penalize violators and protect Indian investors from fraudulent practices.
