Wednesday, April 3, 2013

Corporate Communication Through Social Media

It is common for CEOs and other senior managers of company to communicate through social media platforms such as Facebook and Twitter. However, concerns have arisen whether that amounts to selective disclosure of company information if that is made available only on these specific platforms without being disseminated more widely to enable greater access to investors.

The US Securities and Exchange Commission (SEC) has issued a report which permits companies to use social media to disseminate information so long as investors are forewarned as to which social media will be used for the purpose. In the US, Regulation FD seeks to counteract selective release of information by companies and requires them to disseminate it more widely so that it is available to all investors and on a non-exclusive basis. SEC has specified that above approach with respect to social media would be generally in tune with Regulation FD, and this approach follows a similar stance adopted by the SEC a few years ago with respect to information posted on company websites.

In India, the parallel of Regulation FD is contained in SEBI’s Prohibition of Insider Trading Regulations, particularly Schedule II which contains a Code of Corporate Disclosure Practice. Thus far, SEBI has not specified its policy on the use of social media by corporates, but the broad rule set out by the SEC may be a workable proposition in the Indian context as well.

More generally, the use of social media for market information has recently been of interest to SEBI, as this news report suggests.

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