The corporate watchdog has warned online gaming companies offering fantasy stock trading they could be in breach of the law.
It follows the launch of a stock trading game in Melbourne aimed at Australian university students, backed by a former principal of JP Morgan Partners.
Fantasy stock trading games, which are becoming prominent in the United States, allow users to place virtual trades on an online gaming platform.
While some games are free, others charge entry fees for games and reward users in real cash for trading competitions.
The Australian Securities and Investments Commission told Fairfax Media any game offering real financial rewards for real trades could be offering a form of derivatives trading, such as binary options trading, and require an Australian Financial Services (AFS) licence.
"While some so called "games" may describe themselves as such, that does not necessarily mean they are," an ASIC spokesperson said.
Last week Bobby Bhatia, a former principal at JP Morgan Partners, launched virtual trading platform Stockfans at the University of Melbourne.
TrakInvest, the company behind Stockfans, describes itself as pioneering the "gamification of trading" and is based in India.
Stockfans allows users to make virtual trades on the Australian Securities Exchange (ASX) as well as other global stock markets including the NASDAQ and New York Stock Exchange. While the trades are fake, players can win real money through competitions. Players make trades based on live data and actual market prices.
TrakInvest local chief David Watson told Fairfax Media Stockfans was an educational tool to help people learn how to trade.
He said the game had "nothing to do with options, or binary options, or anything of that nature".
"StockFans does not involve monetary purchases of equities, it is not a brokerage, and is not subject to any regulation."
Conditions on entry
Stockfans warns players in its terms and conditions that they must only access the site "from a location where the services are lawfully offered".
"If accessing paid services, you warrant and represent that you are not a resident of the United States."
US regulators have moved to shut down fantasy stock trading games after companies were found to be offering illegal swaps.
The Securities and Exchange Commission (SEC) issued a warning to investors in June that virtual games referencing securities could involve a security-based swap.
ASIC said it was aware of the existence of Stockfans and did not believe it held an AFS license. It urged anyone with concerns about the game or other virtual trading sites to report to ASIC.
It also warned investors to be aware of the rules around derivatives trading.
"In all cases the rule applies: take care, check things out first, and do your homework," ASIC spokesperson said.
The ASX has its own virtual trading game that is free for users. Other commercial trading or advice platforms like Sharelord Investor and Trading Game are licensed or authorised as representatives through an AFS licensee.
Binary options allow investors to make an outlay and take a position on whether an underlying asset, such as a share, will either rise or fall in price by a set time.
As a financial product under the Corporations Act, any company that deals with options must hold an AFS licence, or be authorised by an AFS licensee.