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SEC Rules Favorably on the Use of Social Media
The way that companies disseminate market-moving information has long been a topic at the Securities and Exchange Commission, amid attempts to prevent any form of distribution that might give certain parties an unfair advantage. Now, with the advent of the digital age, conversation over this issue has shifted to the use of social media among corporations. And, it appears as though regulators are embracing these new pathways, as social media becomes more integrated into the lives of consumers and investors alike.
The SEC launched an investigation into the matter in December 2012, after Reed Hastings, the Chief Executive of Netflix, Inc. (NFLX), an online video streaming service, boasted on social networking site Facebook Inc. (FB) that his company had reached over 1 billion hours in viewing within a single month, a feat it had yet to accomplish. The move sent Netflix’s stock up on the news. This prompted the SEC to review not only his actions, but to consider the overall implications of using social media as a means to reach shareholders. The goal was to determine whether using these sites as a form of communication would violate rules that prevent companies from being selective in the way they disseminate information.
Following the investigation, the SEC ruled that, given the prevalence of social media, it should be viewed as a suitable method for communicating with the investment community, so long as each company discloses that it will be using such methods. This way, shareholders know where to go to get the latest updates, be it Facebook, or other networking sites, such as Twitter. This marks a major step for corporations looking for new pathways to communicate with investors, as social media sites offer fast access to millions of individuals. The SEC noted, however, that although it did not intend to bring charges against Hastings, the personal Facebook pages of executives would not likely be included under the umbrella of what is deemed acceptable from here on out.
The ruling suggests that the use of social media will encourage the free flow of information within the investment community, rather than hinder it. In an ever-advancing digital world, the SEC’s stance here speaks volumes about how ingrained these sites have become in society, and what role they will play going forward. By updating a corporate Facebook page, or sending a tweet via Twitter, companies can reach more investors, at an increasingly rapid pace.
Essentially, this gives corporations an entirely new platform from which to communicate, and may, thereby, change the way the investment community exchanges information as a whole. The use of social media as a corporate communication tool augurs well for both companies and individuals, as information will likely be more readily available now than ever before.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.