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NSE Data and Analytics Ltd has issued notices to multiple fantasy stock trading apps to immediately stop using its data for virtual gaming platforms that are based on real-time movement of shares.

NSE Data, a unit of the National Stock Exchange of India Ltd, has also demanded damages for violating NSE’s intellectual property rights, cost for loss of revenue, and reputational loss, as per a copy of the notice seen by YourStory. 

(NSE’s notice states “INR 10,00,000/- (Rupees Ten Crores only)” towards damages. NSE did not immediately respond to YourStory’s email seeking clarification on the exact amount.)

“… you are disseminating data deceptively similar to the real time Data belonging to NSE Data, to your users on a commercial basis, for virtual trading, gaming and stimulation, and misrepresenting that you are authorised by NSE data to use this data on your website or mobile application,” NSE Data says in the notice.

The development has effectively put on the line an emerging sector that’s been operating in the grey for long–although authorities have called it out in the past–leaving at least some fantasy stock gaming platforms considering plans to shutter their operations altogether.

An NSE executive, speaking on condition of anonymity, said while the exchange was willing to provide its data to startups “solely” for education purposes, companies could not use NSE stock data and charge users for gaming, competitions or schemes based on that. 

“A lot of apps are running under the garb of being an educational platform. But at the end of the day, they all are making money via betting, gambling, predictions, creating pools, and so on,” this person said. “That is one of the reasons why they do not source data from authorised sources. No one has done the paperwork.”

NSE Data has asked the firms to disclose the names of the entities through which they accessed the data, and enter into an agreement with NSE to retroactively compensate it for “illegal profits earned… and accruing to NSE during the time of wrongful use of the data.”

Failure to comply with the “requisitions” mentioned in the notice could invite civil and/or criminal proceedings, it warned.

NSE did not reply to an email from YourStory seeking comment and details on companies that have been issued the notice. Ztocks, Threedots, Stocktry, Bullspree, Stockgro, Stockz11, and Dstreet Finance did not respond to queries emailed by YourStory. 

A spokesperson for fantasy sports platform Dream11 said the company’s Investro platform was an “educational app” and at a beta stage of launch, but declined to comment on whether it had received a notice from NSE Data. A spokesperson for Fantasy Trading League said the company had not received any such notice.

How fantasy stock trading works

Users can pay as little as Rs 10 as an entry fee to participate in a virtual stock market game. Such platforms mirror the stock movement on actual exchanges, and allow participants to use fictitious money to buy fake stocks, create portfolios, and compete with others. 

No actual shares or money are involved other than the entry fee, but actual stock market data is used–which is the bone of contention here.

The performance of such fictional portfolios is tied to the performance of the actual movement of stocks on the exchanges. 

Such real-time or historical data feed can be sourced from over 30 NSE-authorised distributors or vendors, or the exchange itself. The same goes for other stock exchanges. The cost of sourcing live data feed begins at about Rs 40 lakh for 6 months, while delayed data (say by 5 minutes) is cheaper and costs around Rs 2 lakh for 6 months.

NSE’s contention is that several gaming or so-called education platforms do not source authorised data as that would bind them to not charge for the use of such data for gaming, betting, predication, competition or leagues purposes. These, however, form the major monetary source for such apps, the NSE executive mentioned earlier said.

Unfair advantage to some?

NSE Data’s notice has also raised questions on who exactly qualifies for the authorised use of its stock data.

“Everyone is trying to position themselves as educational apps. But they all claim to give prizes to their users, claiming that to be an incentive to learn. How is that justified?” said the founder of a stock gaming app on condition of anonymity. 

“There could be an app that calls itself an educational platform and has courses and content around the stock market with gaming as a feature to test that knowledge. It can claim to charge for the course while gaming remains free,” he added. “On the other hand, there could be a similar app with both gaming and education as its features but may change for the game. What about that?”

Another founder of a similar app said his company is contemplating shutting operations or merging with another player to sustain the business. “We can’t burn more money, and are unable to raise VC money. The compliances and legality process is expensive,” he said. 

A parallel, unregulated securities market

Fantasy stock gaming apps have been operating in a grey area for some years now.

Among the earliest versions were Indian Trading League–run by broking company SAMCO Ventures and reportedly endorsed by former cricketer Kapil Dev–and businessman Raj Kundra’s ‘Stock Race’ app.

Contestants had to purchase ‘play points’ or put in money to enter a contest, and were offered cash prizes for predicting increases or decreases in stock prices.

The current bunch of stock market gaming apps are more advanced, attracting more users during the Covid lockdowns as youngsters took interest in gaining financial freedom and diversifying their portfolio investments. 

Such stock market gaming apps, however, have to contend with both the Securities and Exchange Board of India (SEBI) as well as with gambling laws. Different states have different laws around gambling and betting, and a licence may be required in certain cases. 

SEBI has never directly commented on banning such apps nor has it provided investors and users with a protection mechanism. However, in 2016, post the instant success of ITL and Stock Trade, the capital markets regulator issued a “buyers beware” notice, cautioning users and clarifying that such apps are neither approved nor endorsed by SEBI or any SEBI-recognised exchange. 

It also clarified that investors would not have recourse to investor protection, exchange dispute resolution, or investor grievance redressal mechanisms.

“The Stock Broker shall not involve/engage in such games/leagues/schemes/competitions etc. which may involve distribution of prize monies/medals/gifts, etc.,” SEBI said in its notice.

Both the Bombay Stock Exchange and NSE had followed suit and issued similar cautionary notes. SEBI also floated consultation papers in 2016, and even proposed banning such apps, besides issuing another cautionary note in 2020. 

Senior lawyers Sumit Agrawal and Surbhi Purohit had in a paper published in 2016 in IndiaCorpLaw cautioned that “there may also be a policy concern here.”

“Such internet based games have the potential to sideline the regulated market and offer some alternatives to investors and market analysts,” they wrote.

“Regulated trading and investing serves an underlying economic purpose in capital and commodities markets, but that may not be the case with these virtual trading games. If they become a widespread phenomenon, it can even create a parallel, unregulated securities market.”

Another legal expert, also speaking on condition of anonymity, restated the vagueness around the legality and operation of such apps. 

“It’s an acquisition game. All the companies are just buying time to acquire users via gaming and then maybe build some other product on top of it, or get acquired,” he said. “It won’t be possible to solely run anything related to virtual trading/stock market gaming, etc.”