'Social investing' is Sebi's latest headache

When Mark Zuckerberg launched Facemash — what is now Facebook — 59-year old Rajesh Patel from Rajkot was probably the last user he had in mind.

Yet, Patel logs into Facebook every day. Not to look up long lost friends, but to check the buzz on the Wall during market hours.

Move over social networking, ‘social investing’ has found its niche in cyberspace. Young retail investors, day traders and start-up broking firms are increasingly using web-based platforms like Facebook, Twitter and even dedicated social-cum-investment sites for free market tips as well as business promotion.

For example, a typical Facebook page on the markets would say: “Buy X @72, target @90 in short term and @100 in long term” or “gold and silver looks weak for intraday trade. And buy crude oil, copper looks good for long term”.

Inspired perhaps by Zuckerberg, in 2008, three Silicon Valley IT professionals started a financial networking site called Stockezy, an interactive site for free stock trading tips. According to Tushar Makhija, one of the co-founders of the company with five employees, the number of registered users has gone up to 30,000 from 250 two years ago. Users not only get free tips, but also give stock recommendations.

“Social networking sites such as Facebook and Twitter are good platforms for share trading. Young technical analysts like myself and small brokers use the community pages to increase their customer base and presence. It helps the initial promotion of the company,” said Kush Ghodasara, a management student and technical analyst at upcoming broking firm MavjiHari Financial Services.

From day-trade tips to long-term investment strategy, there is no dearth of stock analysts’ views on the sites. “Retail investors generally look for short-term or intra-day tips. Retail investors are ready to take a risk of a 2-3 per cent intra-day price change and 7-9 per cent short term. Long-term investors look for fundamentals rather than technical tips,” Ghodasara pointed out.

Yet, the market regulator does not seem to be very keen on trading tips freely gloating on the net. The Securities & Exchange Board of India (Sebi) is putting in place new software tools that will analyse discussions on social networking platforms.

“We had already issued warnings through public announcements that investors should not be misled by such information or tips on websites. They might be fundamentally wrong,” said a senior Sebi official.

With the information on networking sites being circulated without any filters, the fear of the market regulator is not without reason.

For example, in sites like Stockezy, there are hardly any filters, apart from grading of the users, for information dissemination.

“The essence of social investment is not just collecting others’ opinion, it is also an extension forum. We have run Stockezy for three years, but now we want  to change. We want to educate the users on how to use information prudently,” said Makhija. The firm is planning to tie-up with a US based technical advisory firm called Dorseywright, for providing computer algorithm-based tips on investment by removing the human element.

It may be mentioned, few months back, Sebi had warned investors to be not misguided by astrologers while investing in shares. 
This time however, the task for the regulator is far more challenging, to tame the  growing creed of tech-savvy next generation entrepreneurs, brimming with ideas.