New channels of electronic communication have been a boon to many industries, opening up sales and marketing opportunities, helping improve customer service and speeding up innovation and collaboration. For Wall Street, however, the benefits of technology such as Twitter have to be weighed against the compliance pains.
Twitter, launched by San Francisco-based Obvious in late 2006 before being spun off, is a cross between an online discussion board and instant messaging system, allowing people to post short updates–capped at 140 characters–on their activities. Users can subscribe to each other’s updates, or tweets, and have them sent to their Twitter screens. Some Twitter posters develop armies of followers.
Early adopters, as with most other social media platforms, were primarily teenage girls and the technology obsessed. But usage has spread quickly in recent months–the platform regularly grinds to a halt due to heavy traffic–and Twitter, with its powerful community-creation mechanism, is becoming widespread among groups such as venture capitalists, journalists and stock traders.
Because members select the people they want to follow, Twitter communities are self-organizing. Twitterers can see who the users they are following are subscribed to and follow them as well. If a particular user is particularly annoying, one click makes them vanish from your screen.
Twitter users often link to news items or blog entries, discuss issues of mutual interest, spread gossip and provide coverage of events in real time. For Howard Lindzon, partner at Toronto-based hedge fund Knight’s Bridge Capital Partners, Twitter is both a useful research tool and a way to share information with a closed network of friends. “I’ve been using Twitter for about six or seven months,” he says, adding, “some friends of mine had invested in it, so I was shown it early in the cycle.”
A major attraction of Twitter is that, unlike securities trading message boards, “it’s not spam-filled, with people talking about penny stocks,” says Lindzon. “It’s really a closed conversation with people.”
Lindzon is so enamored of the platform that he created StockTwits, a service that searches for Twitter postings that mention stock symbols. “We’re creating an aggregator where people can listen in on what people are saying,” he says.
Timothy Sykes, a former hedge fund manager and author of “An American Hedge Fund,” is another proponent of Twitter. Sykes did not use Twitter when he ran Cilantro Fund Management–the fund closed last fall, just as the technology was gathering steam. But today he uses Twitter to promote his blog, which offers investment advice “for entertainment purposes only,” and for research. Sykes says he follows the tweets of about 400 users, including stock traders and fund managers.
“You can get a sense of what people in the industry are thinking,” he says. And judging by the posts from other fund managers and traders, he knows he’s not alone. However, there are probably many more who passively follow Twitter conversations, he adds. “I would guess that there are thousands–or tens of thousands–of financial industry professionals who are not using their real names and following people,” says Sykes.
If Sykes was working for a big Wall Street firm, he wouldn’t be actively Twittering. “I definitely would not risk my company finding out, or the SEC coming down on me,” he says. “Someone could lose a lot of money because of your tweets. I wouldn’t risk it.” Instead, he would restrict his use to pure research, in a read-only mode.
The Securities and Exchange Commission also uses Twitter, adds Sykes–to send out advice to retail investors.
As with other communication technologies that have proved useful–if short on security–in their public forms, vendors are working on enterprise-friendly, compliant versions of the platform. In addition to a variety of open-source projects, development efforts are under way at IBM Corp. and start-ups Brainpark and Workstreamr.
Until those solutions are released, vendors like FaceTime Communications can help a company block Twitter and similar systems from desktops, though they can’t do much about personal laptops or cell phones. Belmont, Calif.-based FaceTime, which offers anti-malware and regulatory reporting tools for instant messaging platforms, says it hasn’t yet received requests to monitor and archive Twitter conversations.
“In terms of Wall Street and the financial sectors, it’s a little early for those industries to adopt this particular kind of technology,” says Christopher Boyd, senior director of malware research at FaceTime. “They’re probably still wondering exactly how they can use Twitter.”
It will be hard for companies to get a handle on Twitter use, warns Boyd, since employees can log in from home and use aliases. And FaceTime has evidence that firms are, in fact, already using Twitter, according to Frank Cabri, VP of marketing and product management. “We’re actually communicating with some of our customers–many of whom are Wall Street customers–using Twitter,” he says. “Obviously, they’re getting these feeds somehow.”
Many companies have a blanket prohibition against posting work-related material on social media platforms, enforcing it through a combination of blocking tools, company policies, education and direct monitoring. That’s the case at VSR Financial Services, the second-largest broker-dealer in Kansas. According to VSR president Chris Radford, the firm permits usage of Twitter and social networking sites for research purposes but not for outgoing or internal communications.
“Our reps are independent contractors, and we give them a lot of latitude in what they want to use in finding information,” Radford says. “If they want to use those mediums to conduct research, that’s their prerogative.”
Interest in online communications has been picking up among reps, he adds. “We just had a national conference here and a majority of our representatives were asking about electronic communications–blogging, MySpace, Twitter,” he says. “We want to support the growth of sales. We want to support the acquisition of new assets–and we do that several different ways. But we also have a requirement to supervise the communications with the public and archive those communications.”
As a result, neither independent reps nor company personnel are allowed to use Twitter for official purposes. “If they want to advertise or communicate that way, we haven’t seen a way to meet regulatory requirements,” says Radford.
Ken Pyle, compliance principle at VSR, says that the speed of communication is a major issue with the platforms. “We have to be able to catch it and review it on a real-time basis,” he explains. “For example, if they set up a Web site, they send us notices that they’re making changes in the Web site, we review it and then they can be released.” That process is not practical for faster technologies, he says.
If Twitter and its clones continue to grow and become more useful–which isn’t certain, given that there are no current revenue streams for the products–firms will eventually have no choice but to embrace the technology. Enterprise collaboration and communication vendors including Microsoft Corp., Oracle Corp. and IBM may include Twitter-like tools in releases of their messaging products. IBM has already deployed the BlueTwit micro-blogging platform for its own employees.
San Francisco-based Brainpark is developing an enterprise-level version of Twitter. The company currently offers a hosted, on-demand version of the software, Synapse, hosted in a secure facility with offsite backups. In the next few months, it plans to roll out compliance functionality, including archiving, monitoring, identity management and keyword alerts, says company co-founder and CEO Mark Dowds. Brainpark can also build onsite implementations for firms that want to keep all their communications behind a corporate firewall, adds Dowds.
Article originally appeared in Securities Industry News, which has since closed down.