The Medium Defines the Message: Social Media and Compliance Considerations

Everyone who has tried their hand at marketing has obsessed over the content of an ad or promo piece, and we have all struggled with the difficulty of reaching and engaging our target audience. I won’t diminish the importance of the message, but to reach certain audiences, the medium of communication may be as important as the message you are sending. In 1964, Marshall McLuhan declared that” the medium was the message”. He couldn’t possibly foresee Twitter or even the internet, but his words are truly prophetic. Media has transcended the mere delivery of information and become interactive, even social.

Web sites and email are still vital technologies, however utilizing social media to inform, interact, and engage has become nearly as important as your website. You Tube video sharing can be a powerful visual tool. If you are not LinkedIn, you are missing out on an easy way to network with your peers and clients. Twitter allows you to disperse critical information to vast audiences in a timely fashion. The new modes of communication are numerous and there are more being developed daily. Blogs highlight your expertise, bring readers back to your site and allow you to build a following. Collectively the new media are referred to as “social media”, which is media designed to be disseminated through social interaction, and is created using highly accessible and scalable publishing techniques.

Social media has become mainstream media and its essence is about building relationships. LinkedIn has 70 million members and adds a new member every second of every day. Facebook has 500 million members. Twitter has 120 million registered users. The CME has more than 750,000 followers on Twitter. The proper use of social media can enable you to reach the current generation of young traders and the next generation coming up.

Expanding your marketing effort to include social media is a sensible decision. Whether you are developing social media initiatives for your brokerage on your own, or working with an agency like Gate 39 Media, my purpose in highlighting social media is to alert you to the compliance aspects of employing  this  type of communication.

Social Media Compliance Considerations for Futures Brokers

More than ten years ago, the NFA issued an Interpretative Notice on emails and web sites. At that time, the NFA stated that emails and web sites are subject to the same rules that govern all forms of promotional material.  Promotional material cannot be deceptive or misleading, may not be used as part of a high pressure approach and cannot imply that futures trading are appropriate for everyone. All promotional material, regardless of the media employed, must be captured, archived and preserved.

You may be surprised to learn that your regulator, the NFA, not only “Tweets” but has already issued guidance on the use of social media that became effective Feb. 1, 2010. Blogs, Twitter, Facebook, and LinkedIn, are the equivalent of emails and web sites and they are treated accordingly. They cannot deceive or mislead and they should contain the typical risk disclosures and past performance disclaimers that we are all familiar with.

NFA Compliance Rule 2-29 requires Members to establish procedures for the use and supervision of emails and websites. When supervising the use of emails by their employees, Members have the option to require that employees use the firm’s own email system exclusively. Similarly with social media, Members can either establish procedures or simply prohibit their employees from utilizing social media.

Much of social media involves very brief messages. Tweets, for example, which are limited in size to 140 characters, including punctuation and spacing, simply have no room for disclaimers. Since these brief messages generally lead to a more substantive message, the requisite disclaimers and disclosures should be prominent on the substantive message or landing page.

Chat rooms, forums and Facebook are interactive, and they present their own compliance issues. Outside comments are posted in response to and in addition to the moderator’s content and they provide the opportunity “for posters to spread unsubstantiated rumors and intentional misrepresentations”. To avoid responsibility for these types of improper third party statements, the moderator is obligated to police these postings and remove any that are violative of the NFA’s sales practice rules. The moderator should also take action to bar any posters that repeatedly publish improper posts.

You Tube videos and pod casts are to be treated like TV and radio ads. The NFA requires videos and audios that make specific trade recommendations or that refer to past or future profits, be submitted for pre approval 10 days prior to their first use. You can utilize the NFA’s pre approval service by submitting your promo piece obvious question is how you can possibly know of a specific trade recommendation 10 days in advance. The NFA has suggested that an outline or template of the proposed piece be submitted in advance and that the actual video containing the specific trade recommendation be submitted immediately after first use. In this manner it is possible to create a regular series of timely pieces and still remain compliant. The actual audio and video published should be captured and archived.

There is a great deal of overlap among the various social media. Facebook and Linkedin have aspects of both websites and email. Twitter is like email but typically leads to a web page. Ultimately the core NFA promotional rules apply and it is your responsibility to make sure that whatever media you employ, that your message is balanced and does not deceive or mislead. You should always get pre approval, when you can, and make sure you archive everything.

This article originally appeared in the National Introducing Brokers’ Association newsletter the NIBA Journal.