Social media-induced trade surveillance headache gets worse

Fake news about listed companies and social media posts touting stock tips pose an increasing risk for trade surveillance teams, particularly at retail brokerages.

Regulators’ warnings about social media and market abuse have not been enough to curtail such activity despite a handful of enforcements. According to experts, this means some firms are struggling to manage suspected manipulative transactions while others have not yet implemented surveillance tools that capture abusive social media behaviours.

There have been high-profile examples of company bosses using social media to reveal sensitive information or television talk-show hosts using their platforms to tout securities. Most recently, the BBC alleged that social media personality Logan Paul promoted crypto investments without revealing his stake in them, thus potentially profiting from any price change.

“As far as I’m concerned, that [behaviour] is market manipulation. It’s a grey area. It would be illegal if regulators can prove there was an intent to trade against what they’re saying. It’s something that regulators have to figure out, let alone market participants,” said Matt Smith, chief executive at SteelEye, an integrated comms and trade surveillance provider in London. “I don’t know how, as a financial firm, you’d be able to get in front of that. And there’s so many different platforms — Snapchat, TikTok — where people continue this type of behaviour.”

Mergers and acquisitions rumours

One head of surveillance at a retail brokerage firm told a conference recently they saw a lot of activity on bulletin boards or news websites purporting to have inside information about merger and acquisitions primarily in the UK market but also in others. In some instances, there were double-digit price movements followed by traders closing out positions. The firm has detected a lot of this kind of activity and has noted an increase over the past 12 to 18 months.

“Maybe 50% of the time, these rumours turn out to be true, and the [Takeover] Panel will come out with an announcement. And in many instances, they appear to be fake, because nothing comes out afterwards. I’ve been surprised by [the Takeover Panel] coming in and forcing announcements to either say there is something there or there’s not, which they have the power to do in their rulebook,” the surveillance head said.

“It has been a challenge for us, because the concern is for individuals that are placing trades through our platform in some way, are aware of or colluding in the placing of these rumours, and then benefiting from the subsequent price movement. It’s a real struggle.”