IRO Dilemma: To Tweet or Not To Tweet

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Public companies are taking another look at their corporate disclosure policies, in light of recent guidance from the Securities & Exchange Commission (SEC). The SEC offered guidance recently as to how public companies may be able to use social media sites to communicate material company announcements like earnings, merger activity, executive changes, etc. Based on the SEC’s new guidance, companies wishing to communicate material news through social media sites should provide the market/investors/media with sufficient advance notice of their intentions to do so and explain what sites they intend to use. Being specific and consistent as to your company’s intentions as to site choices, would clearly be helpful to investors and market participants overall.

Back in 2000, the SEC adopted Regulation Fair Disclosure (Reg FD) to provide public companies with a safe harbor to avoid SEC sanctions under federal securities laws for selective disclosure of material information. In 2008, the SEC provided guidance with respect to the circumstances under which a company could comply with Reg FD by posting material news on its website. The SEC indicated that this approach would be Reg FD compliant only if a company’s website received a high volume of visitors on a regular basis and was widely used by the public as a source for company news. Since then, not many companies have used their own websites to make Reg FD compliant disclosures, as determining whether a company’s website has sufficient traffic is tough to gauge unless you are Google! The SEC’s most recent guidance with respect to the use of social media sites for Reg FD compliant disclosures came about as a result of the SEC looking into a Facebook posting about monthly viewership results by Netflix's CEO. No enforcement action was taken against Netflix or its CEO, and, in its release, the SEC acknowledged there was market confusion about how Reg FD applies to social media.

Companies in the process of reviewing their disclosure policies might want to refer to the SEC's 2008 guidance on the use of company websites for more clarity on the SEC's views on what social media disclosures might be acceptable. Press releases, 8-K filings, publicly-assessable webcasts (e.g. earnings calls), etc. are all ways companies have traditionally complied with Reg FD. Now it may be appropriate to add social media sites to the list! One cautionary note -  use the company’s account, not a personal Facebook account. According George Canellos, Acting Director of the SEC's Division of Enforcement, "Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news."

When evaluating your company’s disclosure policy, there is one other regulatory body to consider - your listing Exchange, as the Exchanges have disclosure rules too. Exchange rules require listed companies to promptly disclose material news in a manner that will enable all market participants to access the news at the same time. Here are a few pointers about the NYSE's disclosure rules:

  • NYSE timely disclosure rules are harmonized with the SEC's and companies can comply with the NYSE's disclosure obligations by issuing a press release or by means of any Regulation FD compliant method (or combination of methods) (*).
  • When material news will be released during market hours, the NYSE requires the company to call the Exchange and provide the text of the release at least ten minutes prior to issuance of material news or news that might impact trading in the company's securities, or at the time the company becomes aware of a material event having occurred. The advance call gives the NYSE an opportunity to consider whether a temporary trading halt should be put in place, given the pending news. A temporary trading halt provides an opportunity to all market participants to evaluate the news and make informed decisions about adjusting their trading positions as they may see fit.
  • While not an exhaustive list, examples of material news include: earnings, mergers/acquisitions, securities offerings and pricings related to these offerings, major product launches or new patent approvals, dividend announcements, etc.
  • Foreign private issuers aren't required to comply with Reg FD, but they must still comply with the NYSE’s timely disclosure rule and they may do so by any Reg FD compliant method.

(*) NYSE MKT companies may only comply with the material news dissemination requirements by issuing a press release, but a rule amendment to harmonize this requirement with Reg FD is under consideration.

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