The Securities and Exchange Board of India (SEBI) is calling on intermediary firms to toughen up their controls governing employee use of blogs, chat forums and instant messaging sites.
The SEBI says it has seen unauthenticated news circulating online coming from staff at brokers and other firms, contrary to code of conduct rules.
"It is a well established fact that market rumours can do considerable damage to the normal functioning and behaviour of the market and distort the price discovery mechanisms," says the regulator.
It has sent out a circular telling firms to put in place internal code of conduct and controls to ensure staff do not encourage or circulate rumours or unverified information.
In addition, access to blogs, chat forums and messenger sites should either be restricted under supervision or completely banned. If these tools are used, logs should be treated as records and maintained.
Employees should only forward information after it has been seen and approved by their compliance officer and if they fail to do this they will be deemed to have violated the relevant rules.