While Your Traders Watch Twitter, Is Your Fund Still Compliant?
First and foremost, Happy Halloween!
In honor of Halloween, I’m going to share a trick and a treat about the world of social media and investment firms.
First the trick.
Did you hear the story about how shares of bankrupt Tweeter soared when Twitter announced its IPO? If not, here goes According to WallStreetInsanity, on October 4, 2013, “shares in bankrupt TWTR Inc. (OTC: TWTRQ) were up over 1500 percent as the company’s stock soared from $0.0 to $0.15 on extremely heavy volume. Seems some people thought the consumer electronics retailer was Twitter.”
This story demonstrates that traders are monitoring social media outlets for investment ideas even if they are not personally participating. It also shows that many of those folks buying TWTRQ didn’t quite understand how an IPO works or what Twitter will be valued at (certainly not pennies), but we’ll ignore that fact for the sake of this article.
Now for the treat.
Social media can be a powerful tool for business development as well as investment idea generation. If a hedge fund is participating in social media they absolutely need an archiving solution in place, because like other forms of electronic communications, social media is also subject to regulatory requirements. According to Global Relay, FINRA Notice 10-06 and 11-39 advise that firms must ensure they have an archive in place to retain all records of social networking communications as per SEC Rules 17a-3, 17a-4 and FINRA Rule 4511 — much the same as with business email and instant messaging.
However, what if the fund isn’t participating, but traders are monitoring Twitter for investment ideas?
Good question. Increasingly, traders are using social media for a real-time barometer of what is going on in the markets. Analyzing data can help firms spot new trends and gauge whether traders are optimistic or pessimistic. This information can be useful in ascertaining if a stock or asset is gaining attention and ready to move. At the same time, at the Reuters Investment Outlook 2013 Summit, an FBI agent said the FBI is using social media tools to investigate insider trading.
The growing use of social media for trade ideas combined with increasing regulations is making it even more important for hedge funds and investment firms to be aware of how and where employees are using these tools. If traders are actively monitoring Twitter, we recommend firms put a policy in place and consider supporting technology such as Global Relay Archive for Twitter.
Beyond just capturing all messages (i.e. tweets, mentions, direct messages, etc), Global Relay Archive for Twitter captures a user’s actual Twitter feed along with its contextual metadata. According to Global Relay, the end result is a rich representation of the messaging data within the Archive for review and supervision.
Here are a few other articles on social media you may find interesting:
Photo Credit: Teacher Worksheets