BCSC proposes new rules for stock promoters

By James Langton | May 27, 2021 | Last updated on May 27, 2021
2 min read
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Regulators in British Columbia, long a haven for stock touts and pump-and-dump schemes, are proposing new disclosure requirements for stock promotion activity.

The new rules from the British Columbia Securities Commission (BCSC), which are out for a 60-day comment period, would apply to popular new avenues for touting stocks, such as Reddit, Twitter and TikTok, along with more traditional investment newsletters. The rules would also cover emails, verbal statements and other kinds of communications.

Under the proposed new rules, anyone promoting companies that have connections to B.C. would have to disclose any compensation they’re getting for their efforts, whether they have a stake in the company (both securities and derivatives), and other facts that could conceivably influence their objectivity.

The rules would not apply to investment funds, dealers engaging in activity that requires registration (such as selling a stock offering) or corporate executives and employees that identify themselves as promoting their own companies’ stock.

The BCSC said the objective of the proposals is to give investors “improved transparency about the source and reliability of promotional activity, enabling them to make more informed investment decisions.”

The commission also noted that the added disclosure requirements would help it root out “[p]roblematic promotional activity [that] undermines the integrity of the capital markets and puts investors at risk of harm from making misinformed investment decisions.”

The regulator said its proposals are “the first of their kind in Canada”  and were enabled by amendments to the province’s securities legislation that took effect last year, which give the BCSC greater power to regulate promotional activity.

With the growth of social media as a venue for hyping up stocks regulators are increasingly challenged to address this sort of activity.

“People should know if someone promoting a stock has a financial or other interest, because that would help them decide how much weight to give the promotion and make better informed investment decisions,” said Peter Brady, executive director of the BCSC, in a release.

Earlier this year, a provincial task force in Ontario recommended that the government specifically prohibit misleading, or untrue statements about public companies to make it easier for the Ontario Securities Commission (OSC) to combat both abusive “pump-and-dump” and “short-and-distort” campaigns in its market too.

The BCSC’s proposals also carry a couple of additional requirements for venture issuers, including that they would have to issue news releases disclosing outsourced promotional activity, and they’d have to disclose promotional spending that exceeds 10% of overall operating expenses in their financial statements.

“Some companies have a legitimate need to engage in promotional activities and they should have no trouble complying with the proposed rules,” Brady said. “But abusive stock promotions are a scourge that go hand in hand with abusive trading, and the new rules would give us one more tool to tackle them.”

Comments on the proposed rules are due by July 26.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.