Social media as a means of communication has often been under the scanner the world over. As per an Indian Express report, the Securities and Exchange Board of India SEBI is working on guidelines for the use of social media in capital markets. The guidelines are being framed in order to keep a check on the possible misuse of social media, given that earlier investigations have revealed manipulative insider trading practices through social media. On the plus side, the widespread use of social networks like Facebook and Twitter will also be leveraged to understand market trends.
At a meeting held in June, the International Organisation of Securities Commissions (IOSCO), the global grouping of capital market regulators that includes SEBI, had resolved to focus on social media, which could also serve as a tool for gathering market intelligence and identifying trends.
Though the SEBI guidelines will take time to finalize, it has been in the making ever since the Netflix incident 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.
Another disastrous influence of social media on capital markets came to light with the bogus tweet on US President Barack Obama this April. Miscreants like the Syrian Electronic Army had hacked the Twitter account of Associated Press and posted a breaking news tweet about Obama being injured in an explosion at the White House. Though the AP communication department quickly clarified the tweet as a bogus one, the Dow index plummeted by nearly 100 points with heavy panic selling. This was also a point of discussion at the IOSCO meeting.
With company heads active on social media and the large scale use of social media platforms by stakeholders, it has become imperative to look into the new medium and how it can impact the markets adversely. This despite the inherent problems with monitoring the vast data that floats on it, can be useful for regulators to collect market intelligence and identify trends.
While social media guidelines are in the process of being finalized, a new challenge awaits SEBI with the rising number of mobile messaging apps in the country. The Indian regulator has 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, and SEBI is mullling over ways to tackle this.