August 01, 2023 (MLN): In an era of evolving digital landscape, the acceptance of social media applications among Pakistani investors from boomers to millennials and Gen-Z, has skyrocketed, attracting a large number of passionate and at the same time unversed traders.
However, underneath the facade of potential financial success lies an alarming reality- a lack of proper monitoring and regulation which has paved the way for exploiting vulnerable individuals, resulting in financial losses and a rising concern for investor protection in Pakistan.
Despite its potential, the active investor base in Pakistan is more than 10 times lower compared to similar-sized economies. With only 300,000 investors, the bourse has already gained a bad reputation as a speculative hub, largely due to the influence of Trade Call Gurus who move the market with their calls.
It is important to note that behaving like stock market gurus and making suggestions about investments are illegal. This is a form of manipulation called inducement, which is a crime under the Securities Act 2015.
How do these Guru work? What is their business model?
MG Link News has investigated deep into the dark underbelly of these social trading platforms and revealed a disconcerting trend of unauthorized individuals posing as "experts."
Their method of defrauding small investors is through a pump-and-dump strategy. They would buy a large number of shares of the specific company and then tell their premium group member that the financial prospects of the company have become mind-boggling or the fundamental of the company has greatly improved.
When their followers hurriedly buy that stock in a lure to make more money, these giant gurus sell their own holdings.
This activity is being replicated in almost every PSX trade call group.
Many of these self-proclaimed gurus flex Screenshots of stock market conquests to lure in followers, tempting them with promises of astronomical returns through direct stock recommendations—a practice that is clearly illegal unless backed by authorized financial experts.
The investigation discovered that these apps have rapidly become a hub for crooked operators, surpassing more traditional social media platforms such as Telegram, WhatsApp, YouTube, Instagram, Facebook, and Twitter in their success at attracting new traders to paid channels/groups.
By misusing the lack of financial knowledge among their target audience, these traders trap their victims into paying for access to their "exclusive" insights, ultimately leading to catastrophic financial losses.
The penalties are particularly dire for Pakistan's youth, who are increasingly turning to the stock market in search of financial opportunities and retired population who lost their lifetime savings in the hands of these groups. As a result, the potential for financial ruin looms large over this weak demographic.
Role of SECP:
In the past, the Securities and Exchange Commission of Pakistan (SECP) has unearthed the self-styled stock market gurus who gave self-serving investment tips to the public on social media apps.
Especially, in 2017, SECP had taken serious notice of some brokerage houses’ involvement in the placement and cancellation of orders to create a false impression of trading activity.
The Commission, in the past, had also issued multiple press releases and public notices in leading newspapers to inform the public about such operators.
However, at this time, this menace is spreading quickly and SECP should blow the whistle once again through media campaigns to raise awareness among people regarding these fake gurus.
Without adequate supervision and regulation, the situation could intensify into a full-blown crisis, leaving the reputation of PSX further tarnished which will make genuine investors wary of engaging in legitimate trading activities.
While the SECP already regulates traditional financial institutions, it should extend its vigilance towards this side of trading.
Implementing stringent measures to identify and crack down against unauthorized "experts" is the need of the hour to protect the interests of investors and the integrity of the market.
Need for Financial Knowledge:
Thus, financial education emerged as the crucial need of the hour to safeguard the hard-earned wealth of investors. Lack of knowledge about financial markets exposes investors to such short cuts through trade calls in paid groups.
There should be ways to encourage investors to seek proper financial education and consultation from certified professionals before making any investment decisions.
Copyright Mettis Link News
Posted on: 2023-08-01T15:57:13+05:00
