New SEC regulations clarify restrictions on corporations disseminating news on social media sites
High net worth investors are thought to have cutting edge knowledge of investment products and news about the stock and bonds markets.
But that information is not being disseminated or accessed much, if at all, via social media, which is considered one of the most cutting edge communication tools available.
Compliance and regulatory issues prevent financial services firms from using social media as a way to relate to investors on a daily basis. Because of that, few investors use social media to find their financial news.
According to a Spectrem’s Group Millionaire Corner study, although 52 percent of Ultra High Net Worth investors (with a net worth of between $5 million and $25 million not including primary residence) use Facebook and 40 percent have LinkedIn accounts, only 2 percent seek information on financial products and services from social media sites Only 5 percent said they will be using social media sites to a greater degree in the future for financial information.
But the situation is fluid as social media usage grows. Financial services firms do not want to miss out on an opportunity to get information out to investors.
In order to maintain one of the key elements of the regulations of American financial markets, the Securities and Exchange Commission regulates the use of social media for the dissemination of financial market news and updates. Those regulations and the increased use of social media and mobile technology to read social media are at a crossroads today.
The problem that exists is that the SEC mandates that all investors receive the same news at the same time if the news details a product’s performance, prediction of future performance, or the product’s investment merits. Since a large percentage of investors are not using social media sites for information, if information is disseminated via social media, they would have a distinct disadvantage compared to those that do, because social media alerts are immediate.
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,’’ said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”
In order to comply with SEC regulations, and because the regulations are being modified regularly due to the continued increase of social media usage worldwide, many providers avoid posting significant information on social media.
In March, the SEC issued “Filing Requirements for Certain Electronic Communications” and offered two dozen examples of electronic communication that would not require pre-filing with the SEC before dissemination. The key to those “safe’’ communications is that they are “not related to a discussion of the investment merits of the fund” or “without specific mention of some or all of the elements of a fund’s return”. The examples can be seen here:
In its new regulations, the SEC stated it does “not wish to inhibit the content, form or forum of any such disclosure, and we are mindful of placing additional compliance burdens on issuers.” However, the concern was that “issuer communications through social media channels required careful regulation analysis comparable to communications through more traditional channels” and that corporations need to let investors know the “channels of communication’’ that will be used in distributing non-public information.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.