11 Apr 2013

Australian corporate regulators remain wary of social media

by Karen Evans-Cullen

ASIC and ASX have both issued various warnings to companies about the perils of social media, but the SEC seems more open to it.

In recent times, Australia's corporate regulators have demonstrated growing concern about the rise of social media and the impact it has on the obligations that listed companies have to immediately disclose material price sensitive information. ASIC and ASX have both issued various warnings to companies about the perils of social media, in particular, the need for companies to be aware of what is being said about them on social media so that they can properly comply with their continuous disclosure obligations. And in the last week, they have reaffirmed their commitment to announcements to the ASX being the primary channel for communication of material price sensitive information.

In the US however, the Securities and Exchange Commission appears to be much more open to embracing social media as a legitimate channel for companies to distribute important company information. Last week, the SEC announced that companies can use social media outlets like Facebook and Twitter to announce key information, provided that investors have been told which social media channels the company intends to use for such purpose.

The SEC stated that "We appreciate the value and prevalence of social media channels in contemporary market communications, and the [SEC] supports companies seeking new ways to communicate and engage with shareholders and the market."

Not so ASIC and ASX. Following the SEC's announcement, both ASIC and ASX were very quick to point out that releasing material price sensitive information on Facebook or Twitter would not be acceptable in Australia. Of course, all that they were doing was reaffirming their longstanding position that disclosure of material price sensitive information by listed companies needs to be made first by announcement to ASX, with any other channels for disclosure that the company wishes to use (such as media, websites or social media) being only a secondary channel for communication.

ASIC also warned that even when using social media as a secondary channel for communication, particular care needs to be taken to ensure that the information disclosed was not misleading. When a tweet is limited to 140 characters, the concern is that disclosure by Twitter might lead to some important information or qualifications being omitted. The preference would be to limit tweets and Facebook postings to a notification that the company has made an announcement to ASX, with a link to the announcement being provided.

The SEC's announcement came following an investigation it undertook in relation to the release by Netflix's CEO on his own personal Facebook page of information regarding the company's performance, in particular, that its online viewing hours for the month had for the first time exceeded one billion hours for the first time, when the company itself did not release this information. While the SEC did not take any enforcement action following this investigation, it did clarify its position on the ability to use social media as a primary channel for communication with investors, although it warned that it would not normally be acceptable for companies to release important information through the personal social media accounts of its executives.

So while listed companies in Australia are being held to increasing standards in respect of their need to monitor what is being said about them on social media, at least for now, they cannot rely on social media as a primary channel for communication of information to the market.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.