The Securities and Exchange Board of India (SEBI) has been dwelling on for some time to create social media guidelines for listed companies. Finally the regulator has planned to implement guidelines similar to its counterpart in UK. Based on it, SEBI has dictated that listed companies in India will be able to tweet their earnings on Twitter or update their status on Facebook as long as they provide any market-sensitive information to stock exchanges first.
SEBI recognizes the emergence of social media as an effective communication outlet and appreciates firms using social media to communicate with various stakeholders and investors. However, it thinks it is mandatory for listed companies to use the stock exchange as their primary communication channel for investors since there are concerns on a specific group of investors gaining an edge over others in terms of price-sensitive information.
It is also being said that listed companies may also have to put in place controls and procedures to monitor its activities online and any information posted on social networking sites administered by it and its executive officers.
Worries for SEBI started ever since the Netflix incident in 2012 had compelled the Securities Exchange Commission (SEC) to establish norms for social media usage while disseminating non-public material information on social media. In July 2012, Reed Hastings, the CEO of Netflix had shared the good news of his company having streamed 1 billion hours of content in a month, which was the first time ever in its history. He chose Facebook to post this to his more than 2 lakh subscribers, leading to a sudden jump in Netflix’s share prices from $70.45 per share to $81.72 in only a day’s time.
This left many investors at a disadvantage, as they did not follow Hastings’ Facebook page. Following investigations, the SEC issued guidelines that social networks can be used provided all stakeholders are informed of the site on which the announcement will be made.
In August 2013, Carl Icahn, billionaire investor and chairman of Icahn Enterprises LP, made an announcement on Twitter on positions he had built up in Apple after which Apple shares surged from $475.76 to a high of $494.66 about an hour later, gaining $17 billion in market cap. Icahn Enterprises did warn the market a day before in a notice filed with the US SEC that it intended to use Twitter from time to time to communicate with the public about its company and other issues.
The move may not be a forward thinking one but SEBI has played safe in adopting the guidelines placed by Financial Services Authority in UK. In US it is the opposite as American regulators feel it to be fine if companies choose to disclose information through either their website, press release or through social media, rather than a market statement.
SEBI has been thinking of framing guidelines for the Capital market so that it can keep a check on the possible misuse of social media, given that earlier investigations have revealed manipulative insider trading practices through social media.
While the social media guidelines are being set, SEBI should also brainstorm for a new challenge that is developing with the rising number of mobile messaging apps in the country. The Indian regulator has already found out that mobile messaging services like Blackberry Messenger (BBM) and WhatsApp are being increasingly used to spread sensitive market related information to influence certain stocks. Not sure how SEBI will keep a check on these messaging apps!
Image credit: KnnIndia