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The SEC gives social media a thumbs up

In a move that could change the way companies communicate with their investors, the Securities and Exchange Commission has ruled that company executives can use sites like Twitter and Facebook to release market moving news.

The Securities and Exchange Commission is giving companies a freer hand in using social media. The SEC ruling, which allows companies to announce business and financial information on the likes of Twitter and Facebook, could change the way investors and company officials communicate. 

When Netflix exceeded one billion hours viewed last summer, it posted the news on Facebook. That post drove the company’s stock higher, which drew the attention of regulators. The problem here for the SEC, says Peter Cohan of the venture capital firm Cohan & Associates, is that not every investor is on Facebook.

"Their concern was that some investors would be getting information over Twitter or Facebook that other investors wouldn’t get," says Cohan, "and that would lead to unequal disclosure of information and make the markets less fair."

The SEC ruling potentially clears that up. Now, companies must tell investors which sites they will use to release corporate news. There is some fear that companies will use multiple social media sites -- forcing stockholders to scour the Internet to keep up. But Chris Whalen with Carrington Investment Services expects that issue to sort itself out.

"There are all sorts of different ways invewstors get information," says Whalen, "and I think the SEC has recognized that fact, that evolution."

Whalen says if anything, more investors are likely to check Twitter and Facebook for news than some corporate website.

About the author

Dan Gorenstein is the senior reporter for Marketplace’s Health Desk. You can follow him on Twitter @dmgorenstein.

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