The European Securities and Markets Authority (ESMA) and the region’s national regulators are warning investors about the risks of market manipulation that arise on social media.
In an alert, the regulators stressed that disseminating false or misleading information can amount to market manipulation, even when the person posting the information doesn’t trade alongside their posts.
Any communication, including rumours, that spread false signals about the supply, demand or price of a financial instrument can amount to manipulation, they said.
Ordinary investors can be recruited into market manipulation schemes that use social media in an effort to trigger coordinated actions that artificially influence stock prices, “especially when the perpetrators subsequently take advantage of the price impact due to the trading of those investors who were prompted through the social media.”
To address these risks, the regulators set out the regulatory requirements that apply to both self-styled “finfluencers” and investment industry experts when posting investment recommendations on social media.
Recommendations can include any online post, video, or other public communications that give advice or ideas, directly or indirectly, about buying or selling securities, or how to build a portfolio — even communications that use plain language, it said.
“When posting on social media, transparency and accuracy are key, especially when making recommendations about investments,” regulators said.
This includes objectively presenting recommendations, clearly distinguishing facts from opinion, disclosing any conflicts of interest, and clearly identifying the origin of the recommendations.
Industry professionals also face added requirements, including that they disclose valuation methodologies, any underlying assumptions, risk warnings, and any net long or short trading positions.