This is a guest post by Nitin Amlani, who is a student at Narsee Monji College of Management Studies.
Following is the snapshot of a Facebook post by Reed Hastings, CEO of Netflix in July 2012, which was shared with more 2 lakh subscribers:
In this post, Mr. Hastings is elated because company had streamed 1 billion hours of content in a month, for the first time ever in the firm’s history. And he can be seen congratulating his team for the efforts. But what followed next was beyond the ‘shares’, ‘likes’ & ‘comments’. There was a sudden jump in Netflix’s share prices from $70.45 per share to $81.72 in only a day’s time.
What’s interesting is that this sensitive information (w.r.t trade at Stock Exchange) was not shared to all investors simultaneously. This is because an official channel was not used, which left many investors who were unaware of this Facebook post, at a disadvantage. Securities Exchange Commission (SEC) didn’t initiate enforcement against the CEO, but after investigations they have established norms for all companies in this regard, which were released on the 2nd of April, 2013. SEC has issued guidelines that Social Platforms can be used provided all stakeholders are informed of the site on which the announcement will be made.
Now consider the Indian scenario - if public limited companies like Tata Motors, RIL or others post such information on social media. Many investors in their mid-30’s or more in India who are not net-savvy, will definitely be at disadvantage. Also in the hindsight, most of the investors, as of now, do not expect trade sensitive information to be shared through social media channels.
Taking a cue from SEC, Securities & Exchange Board of India (SEBI) will soon issue guidelines to companies on use of Twitter, Facebook and other social media for sharing non-public material information. A SEBI official has reportedly suggested that the broad rules set by SEC could also be adopted by the Indian regulator.
It has also been reported that SEBI will hire more staff to sift through social media sites and blogs to unearth tips that could impact stock prices before they have been disclosed through official channels. However, SEBI faces the toughest challenge in this regard from sharing of insider tips through Blackberry Messenger (BBM), apps like Whatsapp and the likes.
During the crash in mid- and small-cap stocks between February and March, it is alleged that many traders were messaging market-sensitive information via such services. Though Security agencies in India have been in a dialogue with BlackBerry for access to its network since a long time and that too in the context of terrorism, it seems highly unlikely that SEBI will be allowed access for investigating insider trading.
As social media continues to evolve from a medium of casual communication to one for broadcasting vital information, we will continue to see a growing need for social media guidelines.
Image courtesy: IBN Live