Facebook’s biggest messaging market is infected with some curiously real news instead of the fake variety. Indian traders have been using the company’s WhatsApp chat platform, which boasts more than 200 million local users, to share prescient information about publicly traded companies, a Reuters investigation found. The situation could lead to more regulatory headaches for boss Mark Zuckerberg.
Private group chats reviewed by Reuters found prescient information was spread about 12 stocks, including HDFC Bank and IT outsourcer Wipro. They contained financial details ahead of official announcements.
One message warned in July that Dr. Reddy’s Laboratories would post a loss of more than ₹50 crore ($7.7 million) compared to consensus forecasts of ₹300 crore. Three days later, the WhatsApp user turned out to be more accurate than the analysts.
Tough rules in place
The situation easily could attract the attention of regulators. The Securities and Exchange Board of India has tough rules against sharing inside information and is now pushing brokers to keep recordings of client orders. Authorities in Hong Kong and the United Kingdom already have sanctioned bankers for taking orders or sharing confidential information on such apps. India’s watchdog is comparatively low on resources, however. It has just one employee for every six listed companies, compared to one each at the U.S. Securities and Exchange Commission.
Burden on Facebook
In some ways, that could put a greater burden on Facebook even though WhatsApp’s terms and conditions require users to act legally. India already has been identified in one study as the leakiest country when it comes to deals involving mergers and acquisitions.
It also will add to politicians’ concerns about bogus news and the abuse of hard-to-track, encrypted WhatsApp messages as millions of Indians go online for the first time using their phones.
The $520 billion social network, which is struggling to contain the fallout from a Russian propaganda campaign during the last U.S. election, has run into trouble elsewhere with WhatsApp. Brazil temporarily shut down the service last year when it failed to cooperate in a criminal investigation.
As Facebook aims to enter China, President Xi Jinping will be watching, too. India’s chatty stock traders may be providing a hot tip about Facebook.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
