From Sports Betting to the Stock Market… what’s the difference?

From Sports Betting to the Stock Market… what’s the difference?

Since the Coronavirus outbreak there has been virtually no sports betting due to nearly all sports events around the world being cancelled. What we have seen is the rise of an army of day traders who had previously been avid betters on a host of sporting events who have now turned their attention to the financial markets.

One of the main advantages of social media is its informality, brevity and agility. One of the new breed of day traders says that he brought just one stock in his life and provides his Twitter followers with the caveat “I am not a financial advisor. Don’t trust anything I say about stocks.” It has been widely reported that the new breed of day traders have ramped up the stock market particularly in the USA and encouraged a whole new type of retail investor.

Under Section 21 of FSMA 2000 any communication which invites or induces a person to engage in investment activity is a financial promotion and unless the communication is exempt or approved by a FCA or PRA registered firm it is a criminal offence to make such communication.

The FCA cover all financial promotions capable of having an effect in the UK unless an exemption applies. The FCA would seem to have jurisdiction as a number of the Twitter followers of day traders are likely to be UK based. If there was a complaint by a UK based investor who had suffered a loss as a result of the Twitter feed from a day trader what would the FCA do?

In particular the more interesting question is likely to be whether it is a financial promotion where there is a disclaimer “I am not a financial advisor. Don’t trust anything I say about stocks”. I would have thought that this is unlikely to impress the FCA in circumstances where a day trader goes on to recommend individual shares particularly if the day trader is also investing in those shares as well.

However, the real practical problem facing the FCA is if the day trader is not based in the UK and is based abroad. It may be the case that no one knows where the day trader is operating from at all. In these circumstances it does not seen possible for the FCA to take direct action but at least some of the UK investment community would expect the FCA to take the matter up directly with the social media outlet.

This may be an unrealistic expectation bearing in mind the number of day traders now providing a tipping service and the retail consumer may be best to follow the adage, “if it’s too good to be true it probably is not true”.

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