Canada: Applying Canadian Securities Laws To Social Media

A Square Peg In A Round Hole (OWTTE)¹

IOO² the time has come for Canadian securities regulators and stock exchanges to revisit the application of securities laws and policies to the use of electronic communications for the disclosure of material information. Existing regulatory guidance concerning the ability of issuers to use their company web sites to disseminate material information is SRSLY³ dated and in need of modernization, as the use of social media, now such a large part of the dissemination of information globally, is largely unaddressed. Consideration should be given to providing specific guidance on the use of social media platforms for purposes of meeting (or at least not violating) public disclosure requirements.

ICYMI,⁴ currently, the general principles governing the disclosure of material information, including through electronic communications, are described in National Policy 51-201 – Disclosure Standards (NP 51-201) and, for Toronto Stock Exchange (TSX)-listed companies, the TSX's Electronic Communications Disclosure Guidelines (TSX Guidelines), both of which were first published over a decade ago and have only been updated with limited incremental changes since that time.

What's the Big Deal?

In its 35th Quarterly C-Suite Survey (Gandalf Group Survey), the Gandalf Group found that 51 per cent of the companies surveyed had a corporate Twitter account, 43 per cent had a Facebook page, 41 per cent had a LinkedIn page and 21 per cent had an official blog. Fifty-seven per cent of respondents said that social media either greatly or somewhat helped to support investor relations. One-third of companies interviewed had a specific budget for social media. Clearly, social media has become a part of the corporate world.

Social media provides an easy and cost-effective way to connect with investors around the world in real time. Evidence suggests this is particularly advantageous for smaller issuers. A 2014 study by professors from Stanford University and the University of Michigan⁵ tracked whether technology companies tweeting a link to an original corporate announcement impacted their stock price spread (i.e., the price at which sellers are willing to sell versus the price at which buyers are offering to buy). The study found that for highly visible firms, there was no impact. However, for firms that are not highly visible, dissemination of news via Twitter reduced the bid-ask spread on their stock, consistent with a reduction in information asymmetry, making the stock more liquid and easier to trade.

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Footnotes

1 Or Words To That Effect

2 In Our Opinion. This paragraph expresses the personal views of the individual authors.

3 Seriously

4 In Case You Missed It

5 Elizabeth Blankespoor, Gregory S. Miller & Hal D. White, "The Role of Dissemination in Market Liquidity: Evidence from Firms' Use of Twitter" (2014) 89 The Accounting Review 79.

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