A report on the regulation of the information posted by the financial firms on social media

Email Facebook may be under fire for how it handles the data on its more than two billion monthly active users, but the social media company has been trying to get its hands on financial information from the financial services firms for years, reported The Wall Street Journal.

A report on the regulation of the information posted by the financial firms on social media

Tweets like this one fron an official company account are extremely risky. In the absence of dedicated investor relations accounts on social networks, investors are turning to corporate accounts managed by inexperienced employees who are unfamiliar with the complex rules, laws and expectations that govern communications to investors.

The result is a virtual free-for-all where companies as diverse as blue-chip brand names to obscure penny stocks are behaving as if the social web is beyond the reach of securities laws. But guidance from securities regulators is clear. Securities and Exchange Commission SEC says that all communications made by or on behalf of a company are subject to the antifraud provisions of the federal securities laws, including on Twitter and Facebook.

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And the SEC also advises companies to establish controls and procedures, and to monitor company activities on the web, something that many IR departments are obviously not doing. Linking to articles in which your stock is recommended implies endorsement of the content.

Will the company be equally as willing to link to articles that say the stock is a dud? Our research of corporate social media has identified three key compliance concerns: Widespread linking to and republication of third-party content, including select sell-side analyst stock targets without adequate disclaimers or explanatory language; Almost universal inconsistent use of disclaimers for forward-looking statements and non-GAAP financial measures; and, Poor synchronization of information distribution, leading to investors who follow company accounts on social networks receiving information up to several hours after its release to other channels.

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And while adopting social media policies and implement training programs for web community managers on disclosure laws should be standard practice, they are insufficient because managing public communications in dynamic environments such as social networks is a challenge even for experienced investor relations professionals.

In some cases, companies are posting headlines and links to highlights from sell-side analyst research, including specific stock price targets.

Making it easier for retail investors to access a range of perspectives on a company gives them more information and insight on which to base their decisions. Better informed investors are good for capital markets and for investor protection.

But there are well-established guidelines for companies to follow when they decide to refer investors to third-party commentary and information. And companies must be prepared to provide both positive and negative content.

Strabag SE show how to properly handle analyst recommendations. Social media also introduces new types of implied or explicit endorsement for third-party content. Prohibiting links, likes and retweets is not a solution because all of these activities are vital components of successful social media engagement.

IR department representatives have to be actively involved in monitoring and engaging in social media. Missing disclaimers I have previously written at length about the challenge of using Twitter for IR where there is no room in the character limit for disclaimers to accompany messages.

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But even on Facebook, where disclaimers can be provided with some forethought, companies typically neglect to provide them. Meanwhile, reconciliations of non-GAAP financial measures are not being provided or linked to.

Poor synchronization of important news When investors and others are invited on a corporate website to follow the company on a social network, they have an expectation that the company will keep them informed in a timely manner of important news. In some cases, companies explicitly or implicitly position their social network accounts as channels through which investors can receive timely updates.

For a typical example, see the post I wrote in January on our Bits blog about Yahoo!

A report on the regulation of the information posted by the financial firms on social media

In that case, Yahoo! This sloppiness is setting companies up for trouble. If a company decides to start using Facebook and Twitter for its news, then it has an obligation to make sure that news is distributed to those channels in a timely manner.

Tweets like this one are common. However, sell ratings or downgrades are rarely treated the same way. Regulation FD, which governs selective disclosure, is most often cited as a reason for IR departments to avoid social media.

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Companies can also take steps to ensure that their activities on one network are syndicated to followers on other networks and to their corporate websites.

In short, they are not doing the jobs they were hired to do.With SEC guidance on use of social media for financial disclosures, more firms will enhance corporate information sharing through platforms such as Twitter, StockTwits, Facebook, LinkedIn, and others.

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