The impact of Musk’s latest tweet should act as a wake-up call for regulators, showing them why now is the time to focus attention on this space. Because it is not just Musk who is able to send shockwaves through financial markets by utilising the global reach of social media.
The GameStop debacle
There have also been a number of incidents where individuals have ‘colluded’ on various online platforms to try and influence markets. For example, earlier this year, shares in the struggling video game store GameStop soared as much as 135 per cent as an army of small investors gathered on the social media platform Reddit to discuss tactics. By agreeing to buy and hold stocks in GameStop, hoping to profit from Wall Street bets that the company’s share price would fall, shares surged from $17.25 to $347.51.
The impact of the GameStop debacle was wide ranging – not only did many retail investors and hedge funds incur significant losses, it also forced many hedge funds to introduce new risk management measures to mitigate the damage of something like this happening again.
Regulators have worked hard to get us through the pandemic by putting rules and regulations in place to try and plan for the new risks, but with individuals like Musk able to turn things on their head in a matter of hours, something must be done to govern the impact of social media on company share prices and the stock market.
Just as non-compliance has high penalties, so should ‘modern market manipulation’ by social media. If we do not introduce more rigorous and clear regulations around social media usage, surely this type of online activity will only become more prolific.
We need to put a regulatory framework in place so influencers, chief executives and decision-makers know exactly what they can and cannot post on social media when it comes to company updates, and now is the opportunity for regulators to make the first move.
Until then, Musk and others in similar positions need to start taking more responsibility for what they post, for the good of their own companies and the integrity of financial markets.
Matt Smith is chief executive of SteelEye