BCSC cracks down on social media-driven stock promotions
British Columbia’s securities watchdog is proposing sweeping new rules that would require anyone promoting stocks on social media or via video to reveal whether they own the security or derivatives of it, and to additionally disclose any compensation they are receiving for the promotion.
If the rules are adopted following a 60-day comment period, anyone promoting stocks or other securities could face potential enforcement by the regulator for failing to disclose any “facts that would interfere with the objectivity of the person doing the promotion.”
“People should know if someone promoting a stock has a financial or other interest, because that would help them decide how much weight to give the promotion and make better informed investment decisions,” said Peter Brady, executive director of the B.C. Securities Commission.
The rules — the first of their kind in Canada — would apply to newsletters, financial blogs, emails, oral statements, social media posts, videos or any other communications, “in any platform or medium,” according to a statement from the BCSC late Wednesday.
“Some companies have a legitimate need to engage in promotional activities and they should have no trouble complying with the proposed rules,” Brady said. “But abusive stock promotions are a scourge that go hand in hand with abusive trading, and the new rules would give us one more tool to tackle them.”
In an interview with the Financial Post in February, as what became known as the Gamestop phenomenon was roiling financial markets, Brady said “the pump and dump game” had changed, and suggested that traditional enforcement tools “may not be up to the task in a world dominated by social media.”
He suggested then that new rules were under consideration at the regulator to address phenomena such as videos circulating via online communications platforms like Reddit that appeared to be driving wild swings in long-ignored stocks such as video game cartridge seller Gamestop and video rental chain Blockbuster, among others.
Brady said the BCSC was given broader powers to regulate promotional activity, regardless of who was doing the promoting, thanks to amendments to the province’s Securities Act.
The regulator is no longer restricted to policing companies whose stock is being promoted, shareholders of those companies, and third parties they retain for promotion.
The new rules, which would have to receive customary government approval after the comment period ends July 26, are intended “to enable people to better evaluate the reliability of statements that encourage investment in issuers of securities, often made with the aim of driving up an issuer’s share price, the BCSC said.
“The new requirements would apply to all promotional activity that occurs in — or has a real or substantial connection to — B.C.,” subject to certain exceptions.
The BCSC is also proposing a couple of requirements for venture companies. Those outsourcing promotions would be required to issue a news release specifying who was retained, the platforms on which the promotion would appear, and the compensation paid for the promotion.
In addition, a venture issuer whose promotional costs exceeded 10 per cent of total operating expenses in any given period or year would have to disclose those costs in interim and annual reports.