If the first month of the Trump administration has taught us anything, it’s that technology has increased the speed and ease at which individuals around the world (including those in the West Wing) can share information. These developments are, however, challenging the traditional operation of financial markets. Whilst the US, the UK and Australia have acknowledged the impact of social media on disclosure requirements, their emphasis differs. At one extreme, the US regulator has embraced social media as a method for corporate communication, whereas the UK, although conceptually keen, has cautiously restricted the ability to make disclosures via social media. Finally, Australia’s regulations only look to the effect of unofficial reports and rumours disseminated through the marketplace.
In 2013, the SEC confirmed America’s love affair with social media by deeming social media channels an appropriate medium for companies to disclose material non-public information to the market. This endorsement was qualified by a requirement to ensure the market is informed about which social media channel will be used to disseminate information.
In June 2015, the London Stock Exchange introduced ELITE Connect, which isn’t a dating app, but is, in fact, a social media platform designed to combine elements of Facebook, Twitter and LinkedIn to enable listed companies, intermediaries and investors to communicate online. Before you have visions of UK CEOs following Donald Trump’s lead and releasing trading updates via 4am tweet storms take note that AIM (the Snapchat of the LSE) has just felt the need to pour cold water on the idea. In December 2016, the AIM Regulation Team released a statement addressing the interaction between disclosure obligations under the AIM rules and social media and concluded that “disclosure by social media alone will not meet the AIM company’s disclosure requirements.” Together, these rules aim to ensure both the integrity of the market and the equal and timely disclosure of price sensitive information. As a result, for now at least, we won’t be seeing AIM company announcements forcibly limited to 140 characters.
Such a cautionary approach to social media seems sensible, given the often inaccurate and misleading nature of content posted. Facebook and Instagram, although perhaps initially intended as a way to share one’s life, are today often used to promote one’s “best” life, a life which is frequently duplicitous (and inconsistent with the ASX’s guidance against “cherry picking” good news in disclosures). Similarly, Twitter’s character limit has fostered the “click bait” culture, with misleading tweets (or even continuous disclosure article titles) luring followers into clicking links. The overwhelming temptation to oversell and mislead followers and friends into thinking you have a life of Bondi sunsets and high-achieving children is faced by all social media users, thwarting that temptation in corporate life is an issue financial market regulators have to address.
Here in Australia, the ASX has not released stand-alone guidance on the role of social media on company disclosure, with listed companies just required to act in accordance with the general disclosure requirements in the ASX Listing Rules. There are a few parts of the Listing Rules that are particularly relevant (and becoming more so). Firstly, the Listing Rules only allow companies to release price sensitive information through other channels after it has been given to the ASX and the company has received confirmation that the ASX has released it to the market. This rule prevents companies from releasing information on social media before it’s up on the ASX screens. In summary, if a company wants to tweet “Failing [competitor] has lost ANOTHER contract to us. SAD!!” and that was price sensitive, they really ought to post it on the ASX market announcement platform first.
Secondly, the carve-outs to continuous disclosure (most commonly “incomplete proposal” or “insufficiently definite”) rely entirely on the information still being confidential. Where the information has become public through social media (say a Facebook rumour about a pending takeover), the information has to be immediately disclosed to the ASX.
Lastly, where wild rumours about a company are circulating on social media, including blogs, chat sites, Facebook, Twitter, anything, the ASX can determine that a “false market” has arisen (i.e., there is a risk that people may trade on fake news or alternative facts). The ASX can then require the company to correct the rumour (even if wholly inaccurate) in a timely manner to end the false market (i.e. where the misinformation is compromising proper price discovery). Considering that the Listing Rules aim to ensure an efficient, competitive and informed market, ASX takes the view that preventing and responding to false markets is critical. If a company is unable to put out an announcement in a timely manner to correct the false market, the ASX can put it into trading halt. Media organisations, for example, that aren’t actually failing might want to have an announcement ready in case the rumours of their demise get out of control
While we can joke about the role of social media in today’s society, there is no doubt that tech developments (and those still to come) make life under existing continuous disclosure standards tricky. In a time when the board of Netflix has access to daily viewership and membership figures (in real time), should the market also have access to this information? Does an abundance of information provide for an efficient market, or instead distort the market? These questions are even more relevant in the age of high frequency trading, where an ever-growing swarm of traders live and die on share price movements over a millisecond. Does a director’s duty to act in the best interest of shareholders extend to these nano-traders, who may be shareholders of a company for the blink of an eye? If so, by not disclosing real time information, could directors be breaching their duties?
Clearly the sensible answer to that question is no. But the rules may need some clarification to give comfort to directors applying that kind of common sense. The principles which our disclosure and governance standards are built upon are sound, however, with ever-advancing technology changing trading and disclosure practices in financial markets, further guidance from regulators would be welcome. For the time being though, we can safely say that social media can be reserved for the Oval Office and not Australian boardrooms.