New SEC Guidance on Social Media Levels Playing Field for Investors
As technology advances, the rules that face the investment industry must advance with it. That means investors not currently using social media will need to get on board, or they could possibly miss out on the latest company disclosures.
On 2 April, the U.S. Securities and Exchange Commission (SEC) released guidance to companies about the acceptable use of social media, such as Facebook or Twitter, to release company-related information. According to the SEC, the public firm must ensure “investors have been alerted about which social media will be used to disseminate such information.”
This guidance removes concerns that disclosures made through social media outlets may conflict with the SEC’s Regulation Fair Disclosure (Regulation FD). By informing all investors of the social media outlets that may be used to release information, the firm is leveling the information distribution field for all current and prospective investors. “Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively,” the guidance states.
This SEC announcement concerning social media follows the organization’s mid-March release of guidance for investment companies. “The goal of the guidance is to increase transparency and enhance compliance with federal securities laws and regulations.” The new guidance provides staff examples of the types and nature of information included in interactive communications that both would and would not need to be filled with the SEC.
Examples of items that do not require disclosure, as outlined by the SEC:
- An incidental mention of a specific investment company or family of funds not related to a discussion of the investment merits of the fund
- A factual introductory statement forwarding or including a hyperlink to a fund prospectus or to information that is filed pursuant to Section 24(b) or Rule 497
- A response to an inquiry by a social media user that provides discrete factual information that is not related to a discussion of the investment merits of the fund
Examples of items that would require disclosure, as outlined by the SEC:
- A discussion of fund performance that provides specific mention of some or all of the elements of a fund’s return (e.g., one-, five-, and 10-year performance) or promotes a fund’s returns
- A communication initiated by the issuer that discusses the investment merits of the fund
The use of social media in the investment industry is an important topic being addressed by many regulators beyond the SEC. This is also a topic that has garnered much attention and focus by the CFA Institute Standards of Practice Council (SPC) in its current review of the Standards of Practice Handbook. The increased use of social media by CFA Institute members and candidates in their business practices is of particular interest in the context of some fundamental ethical principles such as dealing fairly with clients and the potential disclosure of material nonpublic information. The SPC will release updated guidance for public review and comment later in 2013.
Just as regulators around the globe adapted their requirements with the growth of the Internet in the 1990s, organizations with oversight of the investment industry should expect to see their rules continue to evolve to reflect current practices by filers, investors, and investment organizations. The advancement of technology will always be accompanied with the need for additional guidance, and all participants should focus on fundamental ethical principles when applying new technology within the industry to avoid its misuse within the market.
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