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Listed cos can Tweet earnings, update status keeping stock exchanges in the loop

While Sebi appreciates social media, its concern is around a specific group of investors gaining an edge over others in terms of price-sensitive information.

, ET Bureau|
Last Updated: Feb 25, 2014, 08.59 AM IST|Original: Feb 25, 2014, 08.59 AM IST
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While Sebi appreciates social media, its concern is around a specific group of investors gaining an edge over others in terms of price-sensitive information.
While Sebi appreciates social media, its concern is around a specific group of investors gaining an edge over others in terms of price-sensitive information.
MUMBAI: Listed companies in India will be able to tweet their earnings on Twitter or update their status on Facebook as long as they provide any market-sensitive information to stock exchanges first as the Indian securities regulator is set to adopt rules on the lines of the one unveiled by its counterpart in the UK a while ago.

The Securities and Exchange Board of India (Sebi) plans to issue aguidance, which will make it mandatory for listed companies to use bourses as their primary communication channel for investors even as the regulator recognises the emergence of social media as an effective communication outlet in Asia's third-largest economy.

The trigger for Sebi's new stance has been the rise in the use of social media among tech-savvy firms and executives that are using contemporary channels to communicate with various stakeholders and investors. While the regulator appreciates the value and prevalence of social media channels, its concern centres around a specific group of investors gaining an edge over others in terms of price-sensitive information, said a person with knowledge of the latest move.


Listed cos can Tweet earnings, update status keeping stock exchanges in the loop
In the UK, the Financial Services Authority, or FSA, has prohibited companies from disclosing price sensitive information on the social media first. This is unlike the US, where companies can choose to disclose information through either their website, press release or through social media, rather than a market statement.

Last year in April, the Securities Exchange Commission clarified that a public company may use social media to disclose material non-public information in compliance with its Regulation Fair Disclosure, following an inquiry it had launched when Netflix Inc's CEO wrote about the streamingvideo firm's performance milestone on a social media site. The development sent its shares soaring.

In recent times, Sebi has expressed its growing concern about the rise of social media and the impact it has on the obligations that listed companies to immediately disclose material price-sensitive information.

There are over 70 million social media users in urban India and they are growing, on the back of rising smartphone users who access Internet on their phones.

“We are going to make it explicit in the regulations that companies have to report all material pricesensitive information first to stock exchanges… they can't do the other way round,” said a senior Sebi official.

Companies may also have to put in place controls and procedures to monitor its activities online and any information posted on social networking sites administered by it and its executive officers.

Legal experts said a move towards social media disclosures would result in a significant policy shift, as it would potentially usurp bourses as the primary source of disclosures for market-related information.

The Sebi insider trading rules have spelt out a code of corporate disclosure practice, which requires companies to disseminate information through various media in a continuous manner so that these are able to quickly achieve maximum reach.

Corporates have to ensure disclosures are made to boursespromptly, besides updating their company websites on a regular basis on various developments, including analysts calls.

 

Social media such as Facebook, Twitter, LinkedIn, YouTube and blogs offers individuals and companies the opportunity to join a conversation with millions of customers around the globe every day.

“Social media is an important medium of communication which is the future. So, corporations will use it more and more as it brings in more transparency and interactivity.

Sebi should not unreasonably restrict corporations from interacting with stakeholders,” said Ashwin Mittal, president of Blueocean Market Intelligence, a social media intelligence firm.

“Corporates to protect themselves should monitor websites where they are mentioned more often. Globally, a lot of companies are setting up social media control rooms to monitor and respond to comments. In India, this trend is catching up,” Mittal said.

The business units of the Tata group – Tata Steel, Tata Motors and TCS – are seen as forging ahead when it comes to the effective use of social media. For brands such as Dell India, HP India and Tata Motors, conversations were observed to be focussed on product quality and service experience, according to a recent report by Blueocean. It added that IT, ITeS and BPO sectors together showed healthy social media effectiveness scores, driven by greater volumes of conversations, and effective campaigns that worked well towards engaging consumers across channels.

A former Sebi official said since Internet penetration is still very low in India compared to other developed markets, a shift to social media disclosures in India could result in some stakeholders missing out on having timely access to vital company information and hence, it’s too early to make it as primary source for disclosing information to investors. India has close to 140 million Internet users, according to Blueocean.

But some disagree with this view. “As long as companies communicate to public at large and disseminate information to all at the same time, it should meet with the requirement of law,” said Sandeep Parekh, founder of Finsec Law Advisors.

“But if the company has only 100 followers on Twitter, it may not meet the requirements of public dissemination. Likewise, dissemination to research analysts would be only to a select group and not to public at large,” he said. On the flip side, stock markets and companies across the globe face risks due to misuse of social media as it influences investor behaviour.

Last year in August, according to foreign media reports, Carl Icahn, billionaire investor and chairman of Icahn Enterprises LP, made an announcement on Twitter on positions he had built up in Apple after which Apple shares surged from $475.76 to a high of $494.66 about an hour later, gaining $17 billion in market cap. Icahn Enterprises did warn the market a day before in a notice filed with the US SEC that it intended to use Twitter from time to time to communicate with the public about its company and other issues.

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