Bulletin board behaviour

The CISI recently held a Corporate Finance Forum which covered the question: ‘Bulletin boards – friend or foe?’ There was lively discussion with a wide range of practitioners from many disciplines, and results were circulated and sent to regulators.

Bulletin boards may represent a ‘backlash’ against the way retail investors have been ignored by market participants in recent years. (The question of why more house brokers do not publish notes for retail investors was also raised).

But posters on boards often indulge in behaviour that would have a regulated practitioner disciplined and possibly banned by the Financial Conduct Authority. The key point was not to engage with jibes and simply ignore the post.

The well-managed bulletin boards will remove abusive posts, I’ve experienced.

Individual investors can lose out when posts result in wild price swings. Companies can lose out when fund raisings are destabilised, decreasing the price at which money is raised. The market can lose out, with its reputation damaged as serious investors are disadvantaged by the activities of market manipulators.

Like many problematic social networks, anonymity seems to be a root cause of this type of behaviour

Of course, not all posts are fraudulent - many are just mischievous - and could be seen as market abuse.

It is not just the regulator who has a responsibility to act. All market participants have a responsibility to report suspected market abuse, of course.

But is everyone doing this to the fullest extent possible? The FCA’s review of the new Market Abuse Regulations was published in December 2015 and is coming into effect this summer and we reviewed where this was available for action.

Many bulletin board subscribers may not know their actions are wrong and more needs to be done to publicise good market practice. However, there does need to be consequences for wrongful behaviour.

Like many problematic social networks, anonymity seems to be a root cause of this type of behaviour. Although a few websites insist on members displaying their own names and occupations, most don’t.

At what stage does the commentary become advice? As we know, some posters are simply ‘talking their book’ and looking to influence the share price of their long or short position.

Like the ‘Boiler Room’ tactics of old, false stories can spread quickly and can have tragic consequences if followed by private investors, in the momentum trading we have been seeing for some years on the Alternative Investment Market.

With more than a third of Aim companies having a market capitalisation of less than £10m, this can be a playground for those who like to play games. Technology could be used to track individuals under the current system of assumed names, perhaps grading the results.

Perhaps an Aim technology company or a website would take the lead on this, before regulators step in?

One thing is for sure: market participants need to take action and take control of the junior markets again.

Nick Bealer, chartered FCSI, is head of corporate broking for Cornhill Capital

The original version of this article was published in Securities & Investment Review, the membership title for the Chartered Institute for Securities and Investment.