Thursday, April 11, 2013

The SEC and Social Media

Twitter and Facebook just had another rocket ship put in their trajectory!  They, along with other social media, have been officially deemed by the Securities and Exchange Commission to be acceptable venues for companies to disclose material information to investors.  The only caveat is that public companies must advise investors where the information can be found, most likely using traditional media to do so.

While this development has been talked about for years and greeted with criticism by some and enthusiasm by many, it also poses several challenges.

As The Wall Street Journal notes, only 14.4% of companies currently use social media, according to a 2012 Conference Board and Stanford University study.  Thus, the implementation may be challenging for those not very familiar with the social opportunities this presents.  It is also not clear how investors will respond to heightened use of social media in this area, despite the fact that millions of investors use social media now to check up on companies, monitor news and discuss investment opportunities.

John McInerney, a group vice president in Makovsky’s Financial Services Practice, notes in his blog, “Social Media Evolution:  The SEC and Bloomberg,” appearing  in “Word on the Street,” that most Wall Street broker-dealers, advisors, investment bankers, and traders cannot access the social web with the freedom that individual investors can.  “Required to document client communications and fearing insider trading tips, these executives are blocked by their compliance departments from accessing most forms of social media.”

He further said that for all of the SEC’s guidance, this means most of the advisors who are responsible for managing trillions of dollars in assets can’t take advantage of social media’s “information, speed and richness.”  Paradoxically, even if Wall Street could get material via social media, they couldn’t act on it. 

Until last Thursday.

McInerney points out that Bloomberg made a change that is far more important than the SEC’s announcement.  Last Thursday Bloomberg completely integrated Twitter into its terminals, creating a last-mile connection between companies, social media and Wall Street. 

Mr. McInerney says that this is not the time to sit on the sidelines.  Companies will need to join the party to compete for investor attention and to tell their story or risk letting others do so for them.  More than ever, Twitter and Facebook followers will be discussing companies in real time.  Firms will need not only to monitor, but also develop, mechanisms to be part of the conversations.

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