[Pranati is a Fourth Year Law Student at Maharashtra National Law University, Mumbai]
Introduction
The Indian securities market, propelled by robust economic growth, is poised to witness rapid expansion. This growth places regulatory bodies such as the Securities and Exchange Board of India (SEBI) in a position of significance to ensure that the market operates fairly. SEBI serves as a watchdog of the securities market and ensures compliance with its rules. However, emerging trends in media and technology have introduced complexities that necessitate an evolution in SEBI’s regulatory approach. One such complexity is the role that business news channels, and financial journalists play in influencing market behaviour. News channels that broadcast business-related news and issue recommendations relating to markets and stock trading have faced scrutiny from SEBI in the past few years. SEBI has passed orders in the matter of Hemant Ghai and Pradeep Pandya, both of whom were TV hosts on CNBC Awaaz and had allegedly conspired to have capitalised on their position and recommended Buy-Today-Sell-Tomorrow (BTST) trades to the detriment of the share market. The stock tips given by them were used for personal gains which violates fair market practice. This trend not only showcases a clear intent and freedom that a financial journalist possesses to leverage their position, which could reap personal gains at the expense of market integrity but also underlines significant gaps in the regulatory framework governing the dissemination of financial advice to an impressionable investor.
It is in this broad context that the author proposes the introduction of guidelines tailored specifically towards regulating financial journalists. To that end, the author will first, assess the impact a financial journalist and the recommendations they disseminate have on the market dynamics; second, analyse the challenges in treating financial journalists the same way as an investment adviser, research analyst, or a finfluencer; third, highlight the problem with implementing preexisting regulations on financial journalists and lastly, propose potential solutions to the problem at hand.
The Impact of Unethical Reporting on Market Dynamics
Unethical reporting in the securities market does not just tamper with the market forces while diminishing investor trust but also undermines market efficiency. A retail investor in today’s day and age relies heavily on financial journalists to make informed decisions. When this trust is exploited by a financial journalist for personal gain, it skews the market, creating an environment of mistrust and negative sentiment.
The lack of official guidelines regulating the dissemination of advice regarding trading in the securities market has led to a violation of ethical standards and fair and equitable principles of dealing with securities. Currently, no specific SEBI law governs business news channels or financial journalists, especially those dealing specifically with the securities market. Instead, they are broadly expected to adhere to the general provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP). While these regulations aim to curb fraudulent and unfair trade practices in the market, their scope is not tailored to address the unique challenges posed by financial journalism, which the author will substantiate throughout this article.
The Role of SEBI in Regulating Financial Media and Challenges In Regulating Financial Journalists
SEBI, in 2023 took a step towards regulating Digital Media by focusing on “Finfluencers” – who are social media influencers offering financial advice. SEBI released a consultation paper proposing that influencers representing banking, financial services, or insurance (BFSI) sectors register themselves with the regulator. However, it cannot be claimed for certain that a financial journalist could be categorised as a Finfluencer. Firstly, a financial journalist does not only engage with digital media but falls under the category of broadcast media and print media as well. Secondly, financial journalists also often work for business channels and publication houses, which is not the case with a Finfluencer. Further, through the SEBI (Investment Advisers) Regulation, 2013 (IA Regulations) and the SEBI (Research Analyst) Regulation, 2014 (RA Regulations), a legal framework has been set up to register investment advisors and research analysts. Under this framework, advisors and research analysts are required to apply for a certificate of registration while being compliant with the qualifications. The process to apply for a certificate has been laid out by SEBI, which involves providing SEBI with the required documents and submitting an application fee. Expanding the scope of these regulations could address the regulatory gap to a certain extent, but it would bring along the challenges discussed below.
A significant hurdle in regulating financial journalists under the IA/RA Regulations is the definition of the term “investment/research adviser.” According to the IA Regulations, an “investment adviser” is a person who provides investment advice to people or a group of people “for consideration.” Financial journalists, on the other hand, provide advice publicly and do not charge their viewers directly for their opinions. To this effect, upon a closer look at the RA Regulations, SEBI provides some guidance on the issue at hand. Through its FAQ, SEBI clarified that journalists who are on the payrolls of media organisations such as newspapers or television, need to comply with RA Regulations but are not required to register with SEBI. However, this clarification is not binding, as it is not issued through a circular or gazette notification. Consequently, it lacks the authority and enforceability of formal regulatory guidelines. The nature of FAQs through the introductory paragraphs under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST) FAQs and SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT) FAQs has been clarified as not meant to be regarded as an interpretation of the law. Further, they are not binding on SEBI or third parties; any such explanation/clarification that is provided in the FAQs should not be regarded as an interpretation of law nor be treated as a binding opinion/guidance from SEBI. RA Regulations are meant to govern persons making research recommendations and are not tailored towards journalists and media. Moreover, financial journalists play a multifaceted role that extends beyond just offering investment advice. They are tasked with reporting financial news, educating the public, analysing market trends, and holding institutions such as SEBI accountable.
Existing Guidelines and Their Limitations
The News Broadcasting Standards Authority (NBSA) issued ‘Specific Guidelines for Reporting by Business Channels’ in 2017, which aims to ensure transparency and maintenance of ethical standards of financial journalism. However, they lack the comprehensive legal backing that could prove necessary to effectively address fraudulent and unfair practices. The guidelines also do not address the nuances of modern financial journalism, particularly in the context of digital media and the increasing influence of media personalities on market behaviour.
While PFUTP and RA Regulations are designed to govern market players, they are not tailored to the unique role a financial journalist plays in the market for investors. The Pradeep Pandya and Hemant Ghai cases have showcased a financial journalist’s power to affect market trends merely by making stock suggestions. These orders highlight SEBI’s vigilance in safeguarding the integrity of the market and protecting retail investors from manipulation. However, it also highlights yet another gap in the framework. While SEBI acts as the adjudicating, regulatory, and advisory authority for the securities market, its powers must be exercised within a framework that is transparent, well-defined, and proportional to the offense, especially in situations not explicitly covered under existing laws, rules, or regulations.
Potential Solutions and the Way Forward
Given the challenges in directly applying pre-existing laws, SEBI should consider implementing alternative approaches. A potential solution is to develop a separate set of guidelines aimed toward regulating financial journalism or suggesting media regulators bring regulations. These guidelines should outline ethical standards, disclosure requirements (publicly declare any personal investments or conflicts of interest in securities they report on), and a mechanism to address defaults. By doing so, a clear framework would be set up that ensures investors’ protection and accountability on the part of financial journalists and business news channels without infringing on journalistic freedom. In the United States of America, the U.S. Securities and Exchange Commission [SEC] has adopted an open-door approach toward journalists dealing with securities. While financial journalists are not directly regulated, they are expected to adhere to ethical standards and avoid engaging in insider trading or market manipulation. The SEC holds journalists accountable if they misuse material non-public information for personal gain.
Business news channels and publications serve as a bridge between financial markets and the public. They provide real-time updates, analysis, education, and advice to investors hence, they wield a sizable influence over market sentiment and investor decisions. Given their influence, regulatory guidelines should define their responsibility in disseminating financial information, ensuring fact-checking, and maintaining accountability. Networks such as Al Jazeera and BBC have established codes of conduct for their journalists, ensuring ethical reporting. Another step forward could involve the introduction of minimum qualification standards for financial journalists. This would ensure that individuals influencing public opinion possess the requisite expertise and knowledge to responsibly perform their roles. While regulating financial journalism is essential to protect investors, it is equally important to preserve freedom of speech and the press. Financial journalists play a crucial role in educating the public and holding market participants accountable. Any regulatory framework must strike a balance between these competing interests. Ultimately, the goal is not to restrict financial journalists but to empower them to perform their roles responsibly and effectively.
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