The SEC's (Unintended) Effort To Roll Back Reg FD
Let's not get too excited just yet over the SEC's decision to allow public companies to utilize social media as a primary source for disclosure, provided they disclose to investors which platforms they intend to employ.
While I join many others and readily agree that social media will become an increasingly important and prominent part of disclosure, the SEC's half response to a slew of recent high-profile social media disclosure test cases, e.g. Netflix, is actually a step back for Reg FD.
Remember, Reg FD was created to provide a level playing field so that all investors, ranging from small retail to large institutions (and everyone in between) would be provided information simultaneously and through a platform that was readily accessible to all.
My concern for the SEC's announcement yesterday resides with what constitutes accessible platforms. When Reg FD first came about, the approved disclosure platforms were fairly obvious: press releases, national newspapers, broadcast television, radio, etc., and the burgeoning Internet, which over time has increasingly been given prominence, especially in 2008 when corporate websites were deemed to constitute disclosure.
But what about those who cannot access social media platforms or simply cannot be expected to do so? It seems that the SEC's decision only benefits a select few, namely hedge funds and tech sophisticated retail investors, while isolating two other prominent groups:
- Large Institutional Shareholders & Sell-Side Analysts Ever work in a bank? If you have then you know that when you log on to The Wall Street Journal's website, all video content is blocked and forget about accessing your personal email or even ESPN. Why? Because compliance has blocked these sites, and in some instances (read: personal email) is blocked because of regulation and not at the sole discretion of a bank trying to keep employees focused on work. Among the sites that are blocked include almost every social media site, ranging from Twitter to Facebook. No access to information because of regulatory restrictions only serves to ensure the continuation of selective disclosure. Are analysts going to lobby their directors of research and compliance departments for access to these sites, and in turn, are banks going to lobby FINRA to open up the internet to employees?
- Non-Tech Sophisticated Retail Investors Not all retail investors are social media savvy. Simply put, retail investors of a certain age are not going to access Twitter or create a Facebook profile to monitor a few stocks. If they are not active now on social media, this is unlikely to get them to do so. Granted, I realize that this demographic of retail investors most likely is not spending their retirement years day trading, but this is irrespective of what Reg FD dictates.
I enjoy the irony of using Reg FD to defend large institutions, that pre-Reg FD were the primary beneficiaries of what is now deemed as selective disclosure. But, everyone needs to be protected, and yesterday's announcement provides an unfair advantage to a select few.
In the meantime, I just hope that companies who utilize social media will continue to simultaneously disclose information through other platforms, such as press releases and SEC filings, which are accessible to all.