Should ASIC consider social media disclosures?

An acquisition announced over Facebook? Annual profit disclosed in a tweet? For most in the investment world, such an idea may seem absurd, however, thanks to a recent ruling by US Securities and Exchange Commission (SEC), this new channel for company disclosures may soon become a reality.

As of this week, all US-listed companies now have a choice when it comes to revealing key information to shareholders. Harnessing the power of social media, they can opt to tweet it out, post it on Facebook or perhaps even share it through LinkedIn. And that’s just naming a few platforms at their disposal. The decision is set to have significant ramifications for how US companies interact with their shareholders. Perhaps a few companies out there may opt to live tweet their annual results rather than convene a lengthy presentation?

As with most major shifts in the US, the SEC’s rule change also raises questions as to whether Australia should consider a similar move. Our companies might not be as savvy with social media as their US counterparts, but the idea certainly warrants consideration, especially if the method gains more traction with shareholders.

Our ASX-first approach

First, it’s worth considering the differences between Australian and US disclosure laws. Both prescribe a similar list of circumstances as to when companies need to disclose information to the market. Acquisitions, share buybacks and trading halt requests are some of these instances.

In Australia, all these announcements need to be made via the ASX as soon possible in order to keep in line with our Continuous Disclosure laws.

Meanwhile in the US, companies also need to disclose information in a timely manner but can choose to do so via their website, a press release or through social media, rather than a market statement. If they announce it through their own channels, they then have a reprieve of four business days before they have to lodge and 8-K form, formally announcing the information to their exchange.

A move towards social media disclosures in Australia would be a significant policy shift, as it would potentially usurp the ASX as the primary source of market-oriented information. For the time being, the ASX said it has “no plans” to allow listed companies to use social media as the platform for their announcements. However, that doesn't mean that companies have to boycott social media when it comes to promoting their statements. According to the Australian Securities and Investment Commission (ASIC), companies can choose to highlight announcements on social media platforms as long as they are placed on the ASX first.

Having said that, an ASIC spokesman also gave some conditions companies should follow if they are intending to use social media to help push their disclosures. He said it's safest for companies to just post a link the announcement rather than try to reword it on social media platforms.

“As always, the message cannot be misleading and care is needed with that where you have only a few characters to play with,” an ASIC spokesman told Technology Spectator.

“In particular, be careful about any headings in the post and make sure they capture the tenor of the message that is to be given.”

“Finally, companies also need to be careful in responding to Facebook or Twitter commentary. They must give any market sensitive information to the whole market via the ASX first.”

A need for change?

While the SEC’s social media push provides food for thought, are there any grounds to alter the system we have?

Not really, says Michael Quilter, a senior lecturer for Macquarie University's department of accounting and corporate governance. The regulator already has its hands full when it comes keeping companies releasing key information in an honest and timely manner, he says citing a recent disclosure spat between ASIC and mining giant Fortescue.

Quilter also contends that such open disclosure rules may be tailored towards stemming the turmoil gripping the US economy. He says that making company announcements more open and visible via social media may work to bolster the US economy and encourage investment. While that may be necessary in the US at the moment, Quilter says that Australia can afford to have tighter, more regulated disclosure rules as it has a stronger economy.

He also suspects that our investment community may be more technologically “conservative” than the US, hinting that a shift to social media disclosures in Australia could see some shareholders miss out on having timely access to important company information altogether.

The idea that a given market’s rules reflect its investor’s tech aptitude is an interesting one, given that increasing globalisation has put pressure on international exchanges to standardise their rules in order to help facilitate overseas investment.

Despite this, it seems as if the move towards social media disclosures couldn’t come soon enough for the US. As Forbes’ George Anders points out, US investors and hedge funds now prefer to draw insights from lots of quick snippets of information rather than large corporate announcements and following companies, executives and CEOs on social media has become a key means of doing this.

It’s difficult to determine what role platforms like Facebook and Twitter play in the Australian exchange market. We got a taste of its power last year when ASIC pinned social media as one of the causes behind escalation of false, market shaping rumours around EB Private Equity’s supposed takeover bid for David Jones. It’s likely that this won’t be the last instance of social media affecting the Australian market either.

Use of these platforms is on the rise in Australia; there are now enough active Australian Facebook profiles to account just under half of our population. The issue of social media disclosures in Australia may be nascent for now but expect it to be revisited as more investors and companies embrace these platforms.