New SEC Rule Allows Information to be Distributed Through Social Media

Written by: Scott Sery

One of the biggest issues that the Securities and Exchange Commission (SEC) has to face is how to deal with insider information.  This issue has been the premise of many debates, and Hollywood has even made it the subject of movies (think Wall Street).  Companies have had to use finesse when communicating with investors in order to make sure nobody was gaining an unfair advantage.  Because everything needed to be open and public information, the SEC came out with Regulation FD to be certain that everyone had access to the information at the same time.  With the ever rising popularity of social media, the committee has had to adjust their rules slightly.

Not too long ago companies had news agencies and printed annual reports that they used to disseminate information to the public.  In the past two decades the internet has taken off and risen in popularity.  Many companies started to post information about the well-being of their books on their websites.  In the year 2000, the SEC adopted Regulation FD to regulate the method of this information to shareholders.  In short, everyone, not just key investors, was to have access to the information as soon as it was available, and everyone was to be made aware of how to access the information.  The latest report from the SEC is saying that not only can the company’s website be used to inform shareholders of what is going on, but social media (such as Facebook and Twitter) can also be used as information sharing mediums.  The same regulations apply to this new method: shareholders, key investors, and the public all need to have equal access and must know where to look for the information.

This latest tweak of the rules came about because last year the CEO of Netflix made a seemingly benign statement on the company Facebook account.  He had simply posted that the company was doing well and had just surpassed the 1 Billion hour of streaming video mark.  The SEC saw that as potentially distributing insider information and looked into the matter.  Now to most people that seems like a harmless statement, but if it was directed at a select group of investors, it could be seen as insider information.  What happened because of the incident was the new rules allowing companies to use social media to make these statements, as long as their pages are open to viewing by the public, and the public is aware that statements about the well-being of the company may be posted on the site(s).

Back when investors had to wait for annual reports to find out how well the company was doing, not everyone would get the information at the same time.  Those who lived close to the headquarters could have their reports days before anyone else.  This could lead to an unfair advantage to some.  The rapid release of news and information will help to benefit everyone.  By adopting this new regulation, the SEC is allowing itself to adapt to new and changing media platforms.  Facebook and Twitter are the two largest for now, but in the future more social media sites will come and go.  As long as companies adhere to Regulation FD they can use these sites to distribute their information.

Would you follow your favorite companies on Facebook and Twitter just to keep up to date with the latest news?


New SEC Rule Allows Information to be Distributed...

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