Sebi to issue rulebook for use of social media platforms
The Securities and Exchange Board of India (Sebi) is not very keen on the idea of enterprises making key announcements on social media platforms. The Economic Times reported that the capital market regulator could issue guidelines to companies on use of Twitter, Facebook and other social media for issuing information to clients and shareholders.
This move comes following Sebi’s US counterpart, the Securities Exchange Commission (SEC), announcement on April 2, 2013 that henceforth U.S. companies can make key announcements on social media platforms like Facebook and Twitter, provided all stakeholders are informed of the site on which the announcement will be made.
It was also reported that Sebi will hire more staff to sift through social media sites and blogs to unearth tips that could impact stock price before they have been disclosed through official channels.
On April 2, SEC issued rules on use of social media by companies for disseminating non-public material information. “The provisions for the same regulations (similar to SEC) are contained in Sebi’s Prohibition of Insider Trading Regulations, under Schedule II, which spells a Code of Corporate Disclosure Practice,” a Sebi official was quoted as saying. He explained that the broad rules set by SEC could be adopted by the regulator.
“The norms on use of social media may put the onus on companies to keep a check on misuse of these channels, which is good,” said JN Gupta, former executive director of Sebi told ET. “But it should ensure the official source of shareholder information like stock exchanges is kept in loop simultaneously.”
During the crash in mid- and small-cap stocks between February and March, many traders were messaging market-sensitive information via BBM and WhatsApp (an Android-based messenger application), experts were reported to have said.
According to the report, it is unlikely that Sebi will be allowed to access the likes of BBM in search of violation of insider trading laws. Security agencies have been in a dialogue with BlackBerry for access to its network, but that is in the context of terrorism. In the US, the overarching rule on non-public information is Regulation FD (Fair Disclosure), issued in August 2000, which prohibits public companies and those on their behalf from disseminating material, non-public information selectively to shareholders or securities experts, especially in case where they may trade on such information. Such information can be disseminated only if it has been disclosed simultaneously via authorised mediums.
The SEC’s decision came after it had sought to clarify disclosure rules when the agency opened an inquiry into a post made last July on the personal Facebook page of Netflix’s chief executive, Reed Hastings.
SEC was looking into whether his announcement that the movie and TV streaming service had hit 1 billion hours viewed in June violated a rule that requires important information to be disclosed to investors at the same time.
The SEC said that it did not initiate an enforcement action or allege wrongdoing in that situation. But it said staff learned that there was uncertainty about how disclosure rules apply to social media channels.
“The use of social media by companies to communicate is still at a nascent stage in India. So, it is a proper time for Sebi to issue some basic guidance,” said Ashwin Mittal, president of Blueocean Market Intelligence, a social media intelligence firm was quoted as saying. “But it is best if they do not result in a clampdown on a growing channel of communication.”
Quoting a study by Blueocean, the reported stated that the Tata Group ruled the roost in effective use of social media. For brands like Dell India, HP India and Tata Motors, conversations were observed to be focused on product quality and service experience.
Sebi has a presence on Twitter and is contemplating including more interactive features such as discussion forums, live chats and blogs on its website. However, the regulator’s jurisdiction is far from clear in case encrypted data is used for market manipulation.
“I believe people who are behind this mischief can’t walk away with such moves and regulators are working towards it,” Mohan Bhandari, chairman and managing director of Bilcare, told the newspaper. The company has also asked BSE to probe its recent share price crash after traders allegedly shared information through BBM.
“Sebi may find it difficult to tackle further challenges of the digital ecosystem like smartphones, which are key drivers of insider trading and manipulation in stock market. India’s Information Technology Act itself does not have effective provisions to confront misuse of the digital ecosystem and legal framework is far removed to deal with encrypted data scams,” said Pavan Duggal, who practices cyber law in the Supreme Court.
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