Mumbai: WhatsApp, the ubiquitous digital tool sometimes misused to either spread deceptive news or share privileged information by dodgy stock dealers and operators, is finding a place in the realm of the markregulator, albeit with conditions.
The Securities & Exchange Board of India (Sebi) is willing to let stock brokers accept WhatsApp instructions from investors to buy and sell shares if the messages can be salvaged later for investigation. This was spelt out by the regulator last week in an ‘informal guidance’ to an intermediary, which had raised the issue.
Since brokers are required to obtain pre-trading approval from clients to avoid disputes and unsanctioned trades, the feedback from the regulator would come handy to thousands of investors and many intermediaries who were unclear whether order instructions on WhatsApp meet the compliance standards. More so, amid concerns over whether WhatsApp messages, unlike conversations on recorded lines and emails, are more vulnerable to ‘front running‘ – the illegal practice where a broker or trader profits from buying a stock on the basis of non-public information on an expected large transaction.
In curbing such sharp practices, Sebi has laid down the terms in its letter to the broker. “Placing the order through WhatsApp communication from the registered mobile number of the clients may be considered as a legally verifiable record provided that the records/logs maintained by the broker are retrievable for the purpose of any investigation or legal proceedings.” The regulator further said “in case of a dispute, the brokers shall establish the verifiability of such communication in accordance with law applicable for electronic evidence and also comply with other applicable provisions of the Stock Brokers Master Circular”. However, Sebi has clarified that the informal guidance is based on the representation made by the broker concerned, and “different facts or conditions would require a different result.”
“While an informal guidance in neither the law, nor a directive, nor, as Sebi mentions, a decision by the regulator, it nonetheless has a strong persuasive value. Though it was a response to a query from a particular broker, many in the broking community are considering it as an advisory from the regulator,” said a senior official of a large intermediary.
Over the years Sebi had taken multiple steps to counter ‘unauthorised trades’ – ensuring that brokers do not hold client funds beyond a point and putting in place a mechanism for post transactions SMS or email by stock exchanges or depositories.
In June 20205 it told all brokers to execute trades of clients only after keeping evidence of the client placing the orders. Such evidence, according to the 2025 circular can be in various forms: physical record written and signed by a client; telephone recording; email from authorised email ID; log for internet transactions, record of SMS messages, and any other legally verifiable record.
Now, with the recent informal guidance from the regulator, brokers believe that WhatsApp chats with clients can be added to the list provided the records are preserved or can be fished out later if needed.
“The guidance would be relevant for large brokers handling big orders that tend to move prices. Such cases pose a greater risk of front running. So some of the large brokers, particularly listed ones, share a common official WhatsApp number with the clients and connect it to the desktops of employees,” said another person.
Brokers maintain trade records for at least three years. However, in cases of disputes, such records are kept till the matter is resolved. If Sebi directs that certain records have to be preserved, then the data is kept till further direction is received from the regulator.
