False AP tweet impacts market, causes trading flurry

In a recent post, we discussed some of the implications to Florida investors as companies begin to use social media in their communications with investors. Such communications might encourage more investors to stay informed about their securities holdings. However, there could also be a downside.

As a preliminary matter, there might be a perception among many readers that social media disclosures -- even about companies -- might be more conversational, rather than substantive. The user interface platforms created by social media programs like Facebook or Twitter may also discourage disclosures that are lengthy or too factual. Finally, the instantaneous delivery style of social media posts may lead to potential misunderstandings, as today's post illustrates.

A recent tweet from The Associated Press' Twitter account contained false information about an report of two bombings at the White House which caused injury to President Barack Obama. The false disclosure created a visible reaction in securities markets, as evidenced by a sudden dive of about 1 percent in the S&P 500 Index.

The AP corrected the false tweet within a few minutes. However, in the three-minute period immediately following the erroneous tweet, a staggering amount of trading activity occurred, involving more than 620,000 S&P 500 futures contracts and 180,000 10-year Treasury futures contracts.

Some industry experts believe that additional restrictions may be required of social media investment-related information, although it is unclear whether the U.S. Securities and Exchange Commission will take action because of this incident. A securities fraud attorney might caution investors to rely on material representations the old-fashioned way: through a stockbroker or brokerage firm.

Source: foxbusiness.com, "Analysis: False White House tweet exposes instant trading dangers," Steven C. Johnson, April 23, 2013

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